Interest Policy Reversal Postponed for an Indefinite Period

The Governing Council of the European Central Bank (ECB) has changed its interest rate outlook and postponed the date for a possible first interest rate hike to early 2020. In addition, the Council decided to launch a new series of targeted longer-term refinancing operations (TLTRO) for banks. Professor Friedrich Heinemann, head of the “Corporate Taxation and Public Finance” Research Department at the ZEW – Leibniz Centre for European Economic Research in Mannheim, offers his view on the ECB's decision.

“The ECB has made official today what had already become apparent in recent months. For the time being, the turnaround in interest rate policy will be postponed from autumn 2019 to early 2020. De facto, however, the policy reversal has been postponed for an indefinite period. In view of high economic risks and growing fiscal irrationality shown by important euro countries, the ECB is no longer free to make its own decisions. The eurozone is on its way to facing a toxic scenario of fiscal dominance. In terms of monetary policy, interest rates must be kept low in order to limit the damage caused to growth by irresponsible fiscal policy and a lack of national reforms.

Unfortunately, by yet again relying on very long-term loans for Europe’s banks, the ECB has resorted to an instrument that is highly problematic. This corroborates the assumption that the Central Bank’s Council is greatly concerned about the viability of credit institutions in Southern Europe. This measure also nourishes the suspicion that the ECB is not only engaged in monetary policy for the eurozone, but also pursues a bank rescue policy for individual national markets.”

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621-1235-149, E-mail friedrich.heinemann@zew.de