Frankfurt (AFP)

The new President of the European Central Bank, Christine Lagarde, announced in early December a broad review of the monetary policy strategy, unchanged since 2003. Why this site and what points will be discussed?

- Last grooming: 2003 -

Commissioned by its mandate to guarantee "price stability" in the euro zone, the ECB specified this objective in 2003 and strives to achieve an inflation rate "lower, but close to 2%" investment and employment.

However, this rate has been languishing for around 1% for a number of years, with the proliferation of low-paying service jobs and external shocks slowing the economy, particularly trade tensions.

Moreover, as calls for the integration of climate protection into public policies are multiplying, the moment is "ideal" for the new President of the ECB to offer "a new starting point" for monetary policy at dawn eight years in office, says Frederik Ducrozet, strategist at Pictet Wealth Management.

This review is also taking place as the ECB's policy of historically low interest rates and market buy-backs is increasingly criticized, particularly in Germany. He is accused of penalizing savers and inflating the prices of financial assets and real estate, favoring the creation of bubbles.

- 'symmetrical' inflation target -

"The essence of the strategic review should be the level of price we want to achieve," says Eric Dor, Director of Economic Studies at IESEG.

The idea would be to switch to a symmetric inflation target of around 2%, which can be slightly higher. The ECB would therefore skip the phrase "less than 2%", which proved too restrictive.

This evolution seems "desirable and plausible, if only for the sake of simplicity and credibility of forecasts", according to Frederik Ducrozet.

- Greening monetary policy -

Recently pushed by a petition of associations and academics to participate in the fight against climate change, the ECB could take this into account in its monetary policy decisions.

Macroeconomic models used for forecasts should "at least" incorporate climate change into the risk assessment, Lagarde argued last week in the European Parliament.

The institution could also arrange bank refinancing rules at its counter, by favoring institutions providing guarantees for "green" assets, not related to the most polluting activities. Its purchases of assets on the market, intended to support the economy, could also favor "green" bonds.

But for Gilles Moec, an economist at Axa, the "real subject" is mainly "how will the ECB react to the economic risks associated with a climate policy". For example, if prices per tonne of carbon continue to rise, to accelerate the energy transition, they will weigh on the general level of prices and ultimately on monetary policy, "he warns.

- Improve communication -

Too jargonous and spiced with quarrels between opposing clans, the communication of the guardians of the euro is a delicate task, which engages the credibility of the institution.

The ECB "could move to a more transparent and systematic voting process (board members) on key policy decisions," said Andrew Kenningham, chief economist at Capital Economics.

The votes of the 25 members of the body that sets the rates at the ECB, currently anonymous, could be counted between votes "for" and "against", see registered, as other major central banks do long. "If you want to be transparent you have to go all the way," says Moec.

© 2019 AFP