Economic growth is yet to reclaim its pre-crisis level, due in part to weak external demand, but it does nonetheless remain modest. Inflation is well under control by now. And EMEs have in addition ample policy space, on both the fiscal and the monetary fronts, for use should adverse shocks occur.
That said, there are three considerations that are more specific to the euro area. Adjusting policy when inflation is converging to target The first relates to the inflation outlook. A central bank that faces a significant risk of inflation being markedly above target over the medium term would need to initiate a rapid sequence of policy rate hikes to above their estimated neutral levels.