Policymakers need to take into account not just the impact their tools have for their primary purpose, but also any potential side effects. Policy needs to maintain proportionality – my second watchword for today. Proportionality is one of the basic legal principles of the architecture of the European Union.
It is enshrined in the foundational Treaties and demands that the content and form of Union action should not exceed what is necessary to achieve the objectives of the Treaties. For monetary policy, proportionality implies that the ECB’s actions must, first, be suitable to address the identified risks to price stability. Second, the ECB’s measures must be necessary to achieve their intended objective.