ECB’s Stournaras: New Tool Under Consideration to Deal with Fragmentation
20 June 2022
By David Barwick – FRANKFURT (Econostream) – The European Central Bank is considering a new instrument to counter the episodes of fragmentation likely to occur in Europe, ECB Governing Council member Yannis Stournaras said Monday.
Speaking at a conference in Greece, Stournaras, who heads the Bank of Greece, noted the ECB’s ‘resolve to address tightening financing conditions and fragmentation risks’ and that in this context it would flexibly reinvest maturing assets acquired under the pandemic emergency purchase programme.
‘In addition, a new instrument is also under consideration to temper fragmentation episodes’, he said. ‘High uncertainty due to the economic and financial consequences of the war in Ukraine, combined with the fact that the euro area is a complete monetary union but an incomplete fiscal, banking and capital markets union, that is an incomplete economic union, is very likely to cause fragmentation episodes.’
High euro area inflation ‘has necessitated a normalisation of our monetary-policy stance’, Stournaras said, but he was quick to add that ‘the situation here is very different from that in the United States’, where inflation is due to demand-side pressures.
In the euro area, policy normalisation can afford to be gradual, he said. ECB credibility is why long-term interest rates are much lower than they were in the past and why ‘all measures of inflation expectations remain firmly anchored near our 2% objective, while there is no evidence of significant second round wage effects’, he said.
‘What this means, however, is that policy makers must keep their focus on their medium-term inflation objective’, he added. ‘As long as inflation expectations are in line with that objective, we are able to normalise our policy stance in a gradual way.’