ECB’s de Cos: Should Roll Back Fiscal Support as Energy Cheapens, or May Need Tighter Monetary Policy

10 February 2023

By David Barwick – FRANKFURT (Econostream) – If government spending to mitigate the impact of high energy prices does not give way to more fiscal restraint as energy cheapens, this could ultimately require greater monetary tightening, European Central Bank Governing Council member Pablo Hernández de Cos said Friday.

In a speech at the University of Warwick, de Cos, who heads Banco de España, said that given currently elevated inflation, ‘the appropriate policy mix requires a tightening of the monetary policy stance and a fiscal stance that, at the aggregate, euro area level, is not at odds with this anti-inflationary stance.’

‘This means that government support measures should be temporary, targeted and tailored to preserving incentives to consume less energy’, he said.

‘In particular, measures should be gradually rolled back as energy prices fall’, he continued. ‘Otherwise, we are at risk of driving up medium-term inflationary pressures, which would call for a stronger monetary policy response.’