>> GROUP: Shadow ECB Council / EZB-Schattenrat  Marco Annunziata

Marco Annunziata: The ECB faces a very challenging outlook in the coming years. Last week’s European elections indicate we are unlikely to see further institutional reforms to strengthen the cohesion of the Euro area, and there is little hope for the economic structural reforms still much needed in several member countries. This implies that the next few years will be characterized by increasing divergence in growth performance across member countries, and continued concerns for Italy’s debt sustainability. So far, low inflation and inflation expectations have squared the circle, justifying an accommodative monetary policy stance. This might not last forever. If and when inflation pressures rise, the challenge for the ECB will be to uphold its credibility and de facto independence - its ability to ensure price stability even if higher interest rates will have a negative impact on governments’ budget and in growth. A second, opposite challenge will materialize if the ECB needs to cushion a new downturn when policy rate are already negative - this will be both an economic and a political challenge.
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