Joachim Nagel, president of the Bundesbank and member of the governing council of the European Central Bank (ECB), said this morning at a conference in Madrid that in the eurozone "we are still in negative territory when we talk about interest rates." Nagel's reflection, just one week after the new ECB rate hike, is based on the large difference between current inflation of 10.7% in the eurozone, according to October data, and the official price of money, in the 2%.
Nagel, who entered the central bank less than a year ago, did not value the monetary policy before his arrival and was elegant with the former president and president of the ECB, Mario Draghi and Christine Lagarde, respectively, and their governing councils: "No one could have foreseen what has happened and it would be unfair to blame those who did not make the decisions." Nagel's views on this subject are well known...
Now, Nagel recalled, it is time to face the complex economic situation with runaway prices and the eurozone entering a recession. "Inflation is growing and what we can do is help bring it down: we have to do what corresponds to our mandate." Given the growing political pressures in different countries, Spain and Italy, among them, Nagel insisted that "the ECB should not refrain from continuing to raise rates, we have to increase them more so that inflation returns to our medium-term objective."
On the other hand, the central banker has taken advantage of recent events in the United Kingdom -in which a strong decoupling between the fiscal policy of the Executive and the monetary policy of the Bank of England ended up causing the fall of the Liz Truss government- to send a clear message to Brussels as regards the new Stability and Growth Pact. Nagel has advocated that the states have "solid finances", which implies that the fiscal consolidation plan be "binding, without accepting too much flexibility", since if the margin of compliance is too large, the plan itself would be meaningless. Instead, "firm and robust rules are needed."
At the same conference was Pablo Hernández de Cos, governor of the Bank of Spain and also a director of the ECB. Cos has said that in the next few days the ECB's note on the new bank rate will be made public. Without revealing its meaning, he has said that the (non-binding) comments will affect the effect of the new tax on financial stability and the transmission of monetary policy. That is, to what extent they compromise bank accounts and the credit they lend to companies and families.
