ECB’s de Cos: Bringing Down Inflation Would Be Easier if Fiscal Policy Had a Medium-Term Orientation

20 March 2024

By David Barwick – FRANKFURT (Econostream) – Achieving disinflation would be facilitated by fiscal policies that took a medium-term view, European Central Bank Governing Council member Pablo Hernández de Cos said Wednesday.

In an article written for the 2024 yearbook of the euro, de Cos, who heads the Bank of Spain, said that ECB rate hikes were being ‘transmitted forcefully’ to the economy and that a ‘significant part of the pass-through of monetary policy tightening is still pending.’

The effectiveness of monetary policy ultimately depended however on the simultaneous support of other policies, he said.

‘In this regard, macropudential policies that support a resilient banking sector create the conditions for a smooth transmission of monetary policy actions’, he said. ‘Likewise, fiscal actions that adopt a medium-run perspective not only reinforce euro area governments’ commitment to public debt sustainability, but also help avoid additional inflationary pressures.’

ECB policies aimed at reducing inflation would ‘greatly benefit’ from such fiscal policy, which would ‘not only make further interest rate increases less likely, but also help boost credibility, keep inflation expectations anchored and alleviate concerns about debt sustainability’, he said.