ECB’s Stournaras: ECB Monetary Policy Unlikely to Lead to Very High Inflation

1 July, 2021

By David Barwick – FRANKFURT (Econostream) – The probability that the liquidity created by the European Central Bank’s monetary policy leads to very high inflation is low, ECB Governing Council member Yannis Stournaras said Thursday.

In an interview with Greek periodical Business Daily, Stournaras, who heads the Bank of Greece, said about the massive policy interventions to mitigate the fallout from the pandemic that one of two schools of thought argues ‘that these interventions were necessary, that, if they were not done today, the world economy would be in a very deep recession, inflation would be negative, incomes would have fallen, incomes would have fallen a lot.’

Still, he conceded, what is done with all the money created and how fiscal policy adapts after the pandemic are things ‘we need to be careful about’.

‘So the other school of thought, which does not agree with this, says that a very large inflation will be created, because the money supply has increased a lot’, he said. ‘I do not think this school of thought has much chance of being verified.’

History supports the view that the crisis will be followed by a lengthy period of economic strength, Stournaras said, though ‘nothing happens automatically.’ The realisation across Europe that ‘we must all go together in joint action’ amounts to ‘a major change in the mentality’, he said.

The joint funding of the NGEU ‘is a first step towards a more federal Europe, what many of us have been envisioning for years now, a small but important and stable step towards a better-armoured Europe’, he said.

The chance that Greece will not make the most of the recovery fund money ‘is very small now’, according to Stournaras. ‘I can use the Anglo-Saxon expression "this time is different". I think this time period is different. We have come out of a great crisis, we faced the pandemic, we took our lessons, our partners also took their lessons. If we do not succeed now, then we are doomed. But we do not deserve such luck. I think we will succeed.’

Stournaras played down the renewed climb in Greek sovereign debt in the wake of the pandemic. ‘We are clearly in a much better position than in 2010’, he said. ‘We no longer have macroeconomic imbalances, we do not have a large appreciation of the real exchange rate, most of the problems in the banking sector have been reduced. Therefore, I think it is justified to be more optimistic today, despite the increase in the public debt ratio.’

As for Greek banks’ NPL problem, how many NPLs the pandemic leaves behind is unsure, he said. ‘We do not yet know how much, there is uncertainty, but it will clearly be an amount not negligible’, he said. ‘We have said it will be 8 to 10 billion. I wish it were less.’

Greece ‘must be very careful and not leave any tools unused’, he said. ‘Clearly there is progress, but we are still the exception in the Eurozone.’