Article: "Off Target", The Economist, 19 September 2020
Article in a Google Doc
After the European Union issued a collectively funded fiscal stimulus package this earlier this year, confidence in the bloc grew. The block's fiscal policymakers, it seemed, had finally gained enough influence and trust as the European Central Bank, the Union's monetary policymaker. Now the tables are turned. Confidence in the ECB is falling. An appreciating currency, falling prices, and depressed inflation expectations are all causing real interest rates to steadily rise. Meanwhile, the ECB has, as the article indicates, done little to curb the expectations of low inflation. It has not increased asset purchases, provided more fiscal stimulus, nor has it even fought "tooth and nail" to meet its inflation target of 2%.
What should the European Central Bank do? What effects do you think prolonged expectations of low inflations will have? How will a lack of confidence in the ECB affect Europe's economic recovery from the pandemic?
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