ECB’s Cipollone: Unnecessary Restrictiveness Could Have Transitory and Permanent Costs

15 November 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Executive Board member Piero Cipollone said on Friday that the ECB should be aware of both temporary and lasting economic consequences of an overly restrictive approach in its monetary policy.

In remarks delivered at the Centre for European Reform’s annual economics conference on “A European path to higher economic growth”, Cipollone said that ‘imposing more restriction than necessary on the economy in the short term could have transitory and also permanent costs’.

This should be taken into account in a risk management approach, he said.

Allowing economic growth to remain sluggish for a long period of time could be detrimental, according to Cipollone.

‘It could be self-defeating to tolerate an economy running persistently below potential as an insurance against possible future inflationary shocks’, he observed.

This could trigger weaker growth and lower resilience to shocks in the demand and the supply side, he said.

If productivity were to register a cyclical recovery, that would support disinflation and lower the potential for permanent negative consequences on the euro area’s future growth, he indicated.

‘So we should not be more restrictive than what is necessary to ensure the timely convergence of inflation to our 2% target’, he added.

The ECB did not want an overheated economy, he said, but instead looked for an economy that would ‘reach the right temperature, which would certainly be hotter than it has been recently.’

On inflation, Cipollone said that headline readings would be ‘bumpy’ in the following months due to base effects related to energy prices and that the ECB expected it to reach the 2% target ‘in the course of 2025.’

Trump’s potential tariff hikes against Europe could have a considerable impact on economic growth, especially on the manufacturing sector due to the effects these hikes could have on confidence, exports and investment, he said.