The ECB needs a new mandate
Sir, – One central issue is routinely ignored in discussions on whether the European Central Bank’s governor Mario Draghi should engage in further monetary easing and, if so, through what means. That is the case for amending the ECB’s mandate.
The US Federal Reserve is required to have regard to both growth and jobs and inflation. It has a broadly based mandate and the flexibility to use a suite of instruments to balance these goals.
The ECB’s mandate, by contrast, is unambiguously focused on price stability – a goal transposed, of course, from the Bundesbank when it was being designed. It has no legitimate business engaging in monetary financing via bond buying.
It did so during the acute phase of the eurozone crisis. The ECB is now living with the consequences of a swollen balance sheet, the distortions caused by negative interest rates, and a near-comatose eurozone economy crying, “More. I need more”.
It’s stuck in an untenable place and is a prisoner of political expectations. There is something to be said for the Fed’s broad mandate. And there’s something to be said for the ECB’s narrow mandate, insisted on by Germany when it was being established. There is no good case for the ECB pretending to act narrowly while feeling impelled to act as if it were the Fed. It’s time to amend its mandate. – Yours , etc,
Prof RAY KINSELLA,