ECB’s Centeno: Must Harmonize Fiscal and Monetary Policy Action to Exploit Synergies

26 January 2021

By David Barwick – FRANKFURT (EconoStream) – European Central Bank Governing Council member Mario Centeno on Tuesday said that fiscal, monetary and prudential policies must work together for optimal effect. In remarks at the CFA Institute & CFA Society Portugal virtual conference, Centeno, according to a text made available by the Bank of Portugal, which he heads, stressed the importance of intelligent exit strategies in view of the unequal nature of the recovery. ‘[I]n 2021, to pave the way for recovery, the measures must be adapted to the evolution of the crisis’, he said. ‘In the same terms, we must recognize the individual limits of fiscal, monetary, and micro- and macro-prudential policies. Therefore, we must take advantage of all synergies of a harmonized action.’ Policies will need to adapt ‘in the next few months’, he said. ‘The pace of recovery of the economy, the asymmetry among sectors and firms, but also among households require wise exit strategies from today’s policies.’ In particular, he said, the challenge will be to ‘sustain a healthy recovery; withdrawing benefits all at once or at the same pace for all firms and individuals will be a mistake.’ In line with the ECB’s attempt to shift the focus to fiscal policy, Centeno observed that monetary policy was broad-based and unable to target specific economic agents and thus at a disadvantage. For the ECB, ‘ensuring the smooth transmission of the monetary policy is key’, he said, ‘Making sure that the risks assumed today are being properly managed is crucial and part of our priorities.’ In other comments, Centeno said he put ‘a strong emphasis on the importance of achieving a complete banking union.’