Without the ability to use the exchange rate or an independent monetary policy, fiscal adjustment becomes the main policy instrument and since some developing countries have limited fiscal space, they are at the mercy of resource transfers from the stronger member countries. Fourth, the establishment of a regional central bank robs national economies of revenues from seignorage, which could be sizable in fiscal terms.
Sensitivity analysis by ECB staff underlines the risks we would face if firms tried to defend their margins instead. For instance, if firms were to regain 25% of the lost profit margin that our projections foresee,  inflation in 2025 would be substantially higher than the baseline – at almost 3%.