Christian Noyer: Global inflation and monetary policy response in the Euro area Keynote speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the “Real Return: The Euromoney Global Inflation Conference”, Paris, 19 May 2015. *  *  *  The paths of inflation in advanced countries have been puzzling over recent years. While inflation rates fell sharply during the financial crisis and thus behaved as expected, it is much harder to explain their behaviour since then. In fact, rather than rebound as might have been expected as economic activity stabilised and then recovered, the global inflation rate fell from 4.2% in 2012 to 3.5% in 2014 and, in OECD countries, prices dropped from 2.3% to 1.7%. The drop in inflation is lasting despite the fact that oil prices have stabilised and a recovery is under way in the US and UK and burgeoning in the euro area. In the US for example, core CPI inflation has fallen from 2.3% in January 2012 to 1.8% in March 2015. In the UK inflation rate fell during the same period from 2.6% to reach 1%, below the targeted 2%. This persistence of low inflation has consequences for the economic outlook and monetary policy. When inflation is low, companies, households and governments have a harder time cutting their debt loads, a problem that is still acute in a number of countries in the Eurozone.
Second, some EU bodies are obsessed with the “all EU countries must be same” approach. While there may be some point to this, why insist on it in the case of the single resolution system, for instance, if it has been negotiated that the SSM only applies to euro-area countries plus volunteers? One can hardly expect non-euro area countries not participating in the SSM to jump at the single resolution system if it means sharing the burden with those inside the banking union without the same treatment in the area of a fiscal back-stop. At the same time, would you join the SSM if you did not have a clue how the single resolution rules were going to work? The CNB’s position was: let’s discuss the whole thing (BU) in one shot as a one compact and coherent package where the balance between powers, duties, responsibilities and money always remains assured. And negotiate everything as a single animal, so that illogical inconsistencies are not being produced all along. Sure, that would take much more time, but the final outcome might look better and we would not build up the house from the roof down. We are debating the supervisory part first, while burden-sharing (money) is being left for the future. The sequence of steps should ideally be exactly the opposite one. Why? My observation is that the way the various bail-outs and the SSM have been negotiated so far shows that the readiness and willingness even among euro-area countries to share money is declining over time.