(Tiper Stock Exchange) – “Monetary policy must act decisively.” So expressed the Bundesbank governor Joachim Nagel at the Official Monetary and Financial Institutions Forum in London, where he ranged from recent developments in monetary policy to proposals for the reform of the stability pact.
Recalling that the ECB has worked six rate hikes of interest in the last eight months, realizing “the largest sequence of hikes ever recorded in the Euro Area”, and that the slowdown in the economy it’s just a “unwanted side effect” of the tightening of monetary policy, Nagel reiterated “dwe have to tame inflation andto do that, we have to be brave and decisive“.
“In my view, our work is not done yet”said the banker, adding if inflation develops as expected, further interest rate hikes should follow in the next meetings.
“In case the tensions on the financial markets were to continue or spread to the euro area, we are ready to react to preserve financial stability”, underlined the number one of the Bundesbank, adding that “the monetary policy of the ECB will do what is necessary to ensure a timely return to price stability”.
Nagel also talked about tax policy and it showed itself pretty critic in about the Commission proposals European for the reform of the Stability Pact.
The banker has defined “Right” the use of expansionary fiscal policies implemented last year to “help the families hardest hit” by high energy prices and inflation and “support viable businesses that otherwise would not have made it” to overcome the crisis. However, Nagel has called these policies of character “exceptional“, stressing that “while expansionary fiscal measures are appropriate to restore stability in the event of a demand shock, It is not so in today’s circumstances“, which would risk further fueling inflation.
“Last year, the Commission presented its first reform proposal (of the Stability PactEd), which has seen a controversial debate between member states”, underlined Nagel, admitting “I wasn’t convinced from the Commission’s initial proposals. I expressed doubts on whether such an approach will lead to an improvement in tax rulesbut instead I think it will do the opposite”.
“The Commission proposes multi-year fiscal adjustment paths. These paths should be agreed upon by the Commission and by each Member State”, recalled the banker, underlining that “such an approach is hardly compatible with the objective of a clear, transparent and binding common fiscal framework for all Member States. It implies a room for maneuver for states members as well as a high degree of discretion judgment by the Commission”. It follows that “the monitoring of compliance with tax rules would be extremely complex and the results of the sustainability analyzes depend crucially on initially defined assumptions”.
“These challenges will worsen if the rules take into account reforms and investment plans. Fiscal targets would be mixed with other political objectives” and such a framework – complains Nagel – would risk not leading “to a reliable reduction of high sovereign debt levels”.