Posen's Advice to ECB on Facing Threats Common to All Central Banks

All central banks face the dual threats of secular stagnation and right-wing political extremism, according to PIIE president Adam S. Posen. The European Central Bank (ECB) faces the additional challenge of making policy in an incomplete monetary union. Posen argues the best response for the ECB is to aggressively stick to its knitting and give up trying to influence member state reforms, instead pursuing macrostabilization. The latter task would include affirming its role as lender of last resort, committing itself to forms of fiscal quantitative easing, and working with other central banks to raise inflation targets above 2 percent. Because the ECB is popular and protected by law, it does not need to fear for its independence.
Video excerpt from the conference “Monetary Policy in an Incomplete Union,” a colloquium held by the European Central Bank in honor of Peter Praet, May 21-22, 2019.