Overused monetary policy

It is wrong for the ECB to top up its bond purchase program by 600 billion euros without any need. Because there are increasing signs of a gradual recovery in the economy.

In crisis mode: the ECB

Et was the right decision by the European Central Bank (ECB) to respond to the dramatic consequences of the Corona crisis in March by easing its monetary policy and making additional bond purchases, even if the volume of the new program could already be discussed at that time.

It is wrong that the ECB should now, when there are increasing signs of a gradual recovery in the economy, top up its bond purchase program by 600 billion euros without any need. And it is grotesque when participants in the financial markets want to talk about a further increase in the program with a view to very low inflation forecasts for 2022. If you really want to make a fool of yourself, try this in a less clumsy way.

Decisions under great uncertainty are very difficult. From the point of view of politics, there is much to be said for reacting quickly and consistently to a severe economic shock in order not to let an economy remain in a severe crisis for a long time. That is a lesson from the global economic crisis around 90 years ago.

Since expansionary monetary policy, like expansionary financial policy, has shown all experience to react with delays that are difficult to foresee, it would make sense to wait after the first strong reaction. The hectic actionism, because not only the ECB but also other central banks are still showing, is no longer appropriate to the situation. It is difficult for many people to show calm at a time when multi-year forecasts about economic growth and inflation are absolutely impossible.

Some believe that the more radical economic policy instruments are used, the more security can be created. They forget that economic policy instruments become less effective the more they are used.

This also applies to monetary policy. And so there is a growing danger that the dependence of monetary policy, and this applies not only to the ECB, on the financial markets and governments, especially at a time when the central banks would have to show more sovereignty.