Purchases under the public securities purchase programme commenced on 9 March and, to 31 March, had reached over € billion, of which more than € billion related to purchases of Spanish public debt by the Banco de España and the ECB itself. With this expanded asset purchase programme in train, monetary policy may be said to have exhausted its room for manoeuvre. It should be added that the programme is already yielding its first fruit in terms of wholesale funding market prices and, more importantly, signs of easier financing conditions for households and firms. The politics of the Monetary Union I would like to conclude with some thoughts on the political environment in the euro area and its relationship to the economic recovery and the improvement in employment throughout the area. The crisis that commenced in 2007, which is still not completely over, has obviously exacted a high cost in terms of political support for what Monetary Union means. The Monetary Union, whose ultimate justification lies in the advantages it brings for economic growth and welfare, entails a common monetary policy and, as a corollary, relinquishing the possibility of using devaluation of the exchange rate as a national instrument to correct monetary and fiscal imbalances, and also the possibility of central bank financing of budget deficits (known as “monetary financing”). In this situation, there is no way of correcting imbalances other than by means of an “internal devaluation”, i.e.
Inflation is measured as the CPIF and before 1987 as the CPI excluding interest rates. Sources: Statistics Sweden and the Riksbank. 13 [15]  Figure 5. Central banks have reacted relatively quickly and unison Policy rates  Increases so far this year 4  3  2  1  0 BoC  FED  BoE  RB  ECB  NB  Note. Per cent and percentage points. Sources: National central banks. Figure 6. In a good scenario, the Riksbank does not need to make very large interest rate hikes Real policy rate  Nominal policy rate  Note. Per cent. The real policy rate is the Riksbank’s expected real interest rate, calculated as a quarterly mean value of the Riksbank’s policy rate forecast one year ahead minus the inflation forecast (CPIF) for the corresponding period. As the real interest rate is a forward-looking variable, the outcomes are also based on forecasts. The outcomes are calculated on the basis of the most recently published forecasts at that point in time. Source: The Riksbank. 14 [15]  Figure 7. Favourable development during the inflation-targeting period Yield differential against Germany  Real wages  Note. Percentage points and index, 1970 = 100. The interest rate differential against Germany is for 10-year government bonds. Real wages are deflated with CPI and the dot refers to the outcome for Jan-Sep 2022. Sources: Macrobond, the National Mediation Office, the OECD, Statistics Sweden and the Riksbank. 15 [15]