There is a clear risk of the ECB becoming ever more expansive, whereas the effectiveness of its policy declines

Katharina UtermÃ¶hl: Over the next 8 years the main challenges for the ECB will be to gradually start to normalize its monetary policy. But don’t hold your breath, it will take time.

With the short-term growth outlook for the Eurozone economy characterized by a high degree of uncertainty – not least due to a host of lingering risks related to trade, Italy and Brexit weighing on growth prospects - the kick-off interest rate hike could be delayed further until 2021. With a technical recession likely in the US in early 2020, we expect the Fed to cut rates next year thereby forcing the ECB to remain on hold until a recovery starts to materialize.

As the ECB then begins to raise interest rates from 2021 onwards its key challenge will be to forge a consensus in the council with Eurozone countries likely to still show diverging economic performances. On the one hand there are economies like Germany which are doing relatively well in terms of growth and employment but where the negative side-effects of low rates have started to build-up notably for instance in the real estate sector. Meanwhile on the other end of the spectrum are countries like Italy where growth remains lackluster, public debt very high and banks still depend on ECB financing. All national voices will need to be heard, but in the end there is only one monetary policy for the whole Eurozone. This will prove to be a delicate balancing act.

To successfully wean the Eurozone economy - financial markets, banks as well as governments - off the crisis-era stimulus, in addition to technical competence, Draghi’s successor will have to possess strong skills in particular in the areas of politics, team work/consensus-building and communication. Some calibration of tools will nevertheless be required such as a move towards a super-charged forward guidance to ensure that the normalization of rates can progress without triggering adverse market reactions.

The key risk that could challenge even the most timid attempt to normalizing monetary policy is another severe economic downturn. With the Eurozone unlikely to make much progress on setting up a fiscal capacity that can help stabilize the economy during a downturn, the monetary policy toolkit, which was greatly expanded during the crisis, is not only here to stay but will most likely have to be further expanded. The ECB remains the only game in town. There is a clear risk of the ECB becoming ever more expansive, whereas the effectiveness of its policy declines.
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	29.05.2019 There is a clear risk of the ECB becoming ever more expansive, whereas the effectiveness of its policy declines >> GROUP: Shadow ECB Council / EZB-Schattenrat Katharina Utermöhl Tweet Teilen Katharina UtermÃ¶hl: Over the next 8 years the main challenges for the ECB will be to gradually start to normalize its monetary policy. But don’t hold your breath, it will take time. With the short-term growth outlook for the Eurozone economy characterized by a high degree of uncertainty – not least due to a host of lingering risks related to trade, Italy and Brexit weighing on growth prospects - the kick-off interest rate hike could be delayed further until 2021. With a technical recession likely in the US in early 2020, we expect the Fed to cut rates next year thereby forcing the ECB to remain on hold until a recovery starts to materialize. As the ECB then begins to raise interest rates from 2021 onwards its key challenge will be to forge a consensus in the council with Eurozone countries likely to still show diverging economic performances. On the one hand there are economies like Germany which are doing relatively well in terms of growth and employment but where the negative side-effects of low rates have started to build-up notably for instance in the real estate sector. Meanwhile on the other end of the spectrum are countries like Italy where growth remains lackluster, public debt very high and banks still depend on ECB financing. All national voices will need to be heard, but in the end there is only one monetary policy for the whole Eurozone. This will prove to be a delicate balancing act. To successfully wean the Eurozone economy - financial markets, banks as well as governments - off the crisis-era stimulus, in addition to technical competence, Draghi’s successor will have to possess strong skills in particular in the areas of politics, team work/consensus-building and communication. Some calibration of tools will nevertheless be required such as a move towards a super-charged forward guidance to ensure that the normalization of rates can progress without triggering adverse market reactions. The key risk that could challenge even the most timid attempt to normalizing monetary policy is another severe economic downturn. With the Eurozone unlikely to make much progress on setting up a fiscal capacity that can help stabilize the economy during a downturn, the monetary policy toolkit, which was greatly expanded during the crisis, is not only here to stay but will most likely have to be further expanded. The ECB remains the only game in town. There is a clear risk of the ECB becoming ever more expansive, whereas the effectiveness of its policy declines. >> Kontakt Zum aktuellen TEEC-Impuls		Benutzername Passwort >> Ich bin kein Mitglied und bitte um einen Testzugang
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