ECB’s Stournaras: Needed to Act, Given Fears Around Expectations and Wages

22 March 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank had to take some action in view of concerns about the potential for inflation expectations and wage agreements to be negatively influenced, ECB Governing Council member Yannis Stournaras said Tuesday.

Speaking at a conference in Athens, Stournaras, who heads the Bank of Greece, called the Russian war against Ukraine primarily a ‘stagflationary shock’ that monetary policy was not best equipped to address.

‘But we needed to act, because inflation has exceeded our target and there’s a danger for inflation to be entrenched in expectations … and also into wage contracts’, he said. ‘We know that this is a supply-side shock, we know that monetary policy is not the best instrument for a supply-side shock, but the fear is that it might affect expectations, inflationary expectations and also wage contracts.’

The ECB is ‘careful’ and is guided by the principles of gradualism, flexibility and optionality, he said. ‘This is what we call our strategy now’, he said. ‘Which means we move very carefully.’

Monetary policy was still expansionary, he noted, and the decision was just to slow the pace of asset purchases.

‘So, we are in a different phase compared to the Fed and the Bank of England, because the output gap in Europe is still negative, it’s not positive’, he added.