COVID-19 provides a chance to build a greener economy. It is a chance to break the vicious circle of weakening entrepreneurship and the slow diffusion of new and green technologies that have held back productivity growth and prosperity in Europe for too long. And it is a chance to build a deeper and greener financial market that reduces the costs of transitioning towards a low-carbon economy. The ECB will be no bystander on this journey. As climate change poses severe risks to price stability, central banks are required, within their traditional mandates, to strengthen their efforts to support a faster transition towards a more sustainable economy. Thank you. [1] See Le Quéré et al. (2020), “Temporary reduction in daily global CO emissions during the COVID-19 forced confinement”, Nature 2 Climate Change, 18 May 2020. [2] See UN Environment Programme (2019), Emissions Gap Report 2019. For the 2% goal, the respective number would be 2.7%, which is still very large. [3] See Carney, M. (2015), “Breaking the tragedy of the horizon – climate change and financial stability”, speech at Lloyd’s of London, London, 29 September. [4] See Samset et al. (20200), “Delayed emergence of a global temperature response after emission mitigation”, Nature Communications, 11. [5] See Bayer, P. and M. Aklin (2020), “The European Union Emissions Trading System reduced CO emissions despite low prices”, 2 Proceedings of the National Academy of Sciences of the United States of America. [6] See Bravo-Biosca et al. (2016), “What drives the dynamics of business growth?”, Economic Policy, Vol. 31(88), pp.
Meanwhile, on the supply-side of the economy, there is little evidence as yet in the productivity data that would suggest an acceleration in the underlying rate of capacity output growth such as we have seen in the US, and which, while it lasted, would allow the economy to grow correspondingly faster without necessarily generating inflationary pressure. We might all fervently hope to become infected by that particular disease - but the actual evidence so far suggests that up to now we have remained immune. That does not necessarily mean that we will not see accelerating productivity growth. But we can’t afford to gamble on that happening either. When people approach me with the sound-bite “give 3  BIS Review 18/2000  growth a chance”, what I hear them saying is “take a risk with inflation”. But equally when they say “you must take no risks with inflation”, I hear them saying “the world will never change”. The truth is that nobody knows with any great confidence. The important thing is to keep an open mind and to monitor intensively all of the data as they becomes available to us, and then draw what inferences we can as to how those data affect the balance of risks around the inflation target looking ahead. And that of course is precisely what we do in the Monetary Policy Committee.