These conditions are currently met in a number of euro area countries, especially Germany. Page 3 sur 7 Allow me to add a paradox that is not sufficiently well known: to get out of the current low rate environment, we should not turn instinctively solely to monetary policy – as many do. In advanced economies, the natural rate of interest – the level that equates savings with investment over the long run – has fallen by around 2 percentage points in the last 20 years, and monetary policy has a very limited impact on this rate. Instead, what we need is to change the underlying economic factors driving the decline in the natural interest rate. Changing these factors means spending on investment and on the future, including on training and education, the energy transition and of course new technologies, with the aim of lifting long-term economic growth. If we want higher interest rates in the future, we must not be afraid to rapidly put in place targeted fiscal and structural policies. This brings us to the third cliché: other countries have gained more from the euro than we have. Unfortunately, this cliché is repeated everywhere, including in Germany.ii It is also paradoxical given that support for the single currency is currently at an all-time high in the euro area – 76% of European citizens support the euro, and the figure is even 81% for Germany. In reality, the euro has benefited all countries, including – and especially – Germany.
Both its independence and ability to fulfill its mandate are guaranteed even in very adverse economic circumstances. While it should not lead to complacency and negligence, the existence of such buffers should alleviate any concerns about the potential risks that the expansion of the balance sheet may entail. Finally, huge Central Banks’ balance sheets may be seen as influencing the allocation of resources, or effecting implicit fiscal transfers, an issue of special sensitivity inside the euro area. To discuss this question, it is useful to refer to the famous Musgrave classification of public policies between three purposes: allocation, distribution and stabilization. There is no doubt that monetary policy is only and exclusively concerned with stabilization – and a very focused part of it : price stability. No monetary policy action should be taken for any other purpose. So to the extent that “unconventional” tools are implemented, there should be no ambiguity as to their close link with the Central Bank’s mandate of price stability. I believe that has been the case in all major countries and certainly so in the Eurozone. 4. How to mitigate unintended consequences? The truth is, however, that the real world does not always fit perfectly with the beauty of Musgrave’s classification. Some public policies may aim at several objectives. Others may inadvertently, have unintended side effects. All public policies with no exception, health, energy, infrastructures, unwillingly affect some citizens more than others. Those side effects should be minimized, but cannot always be totally avoided.