>> GROUP: Shadow ECB Council / EZB-Schattenrat  Dr. Thomas Mayer

Dr. Thomas Mayer: Despite extremely expansionary policies the ECB has failed to achieve its inflation target of “less than but close to 2%” annual inflation (of the HICP) over the last 10 years. The HICP level is now 7% lower than it would have been, if annual inflation had amounted to 1,9%. The conclusion from this experience is that the ECB is unable to control inflation. A change in the target will be no remedy for this. Instead, a change in the entire strategy is needed.

Ideally, the ECB should move to a 100% money system and ensure an increase in the money stock in line with economic growth. If this is seen as going too far, some scheme of monetary control should be brought back (perhaps by putting more emphasis on the “monetary pillar” within the existing strategy). In today’s world of very big central bank balance sheets and feeble banks, money control would be far easier than in the past, when central bank balance sheets were small and banks used financial engineering to bloat the inside (bank) money stock. Safeguarding the purchasing power of money is the best contribution a central bank can make to support general economic policy. Money creation to stimulate economic growth or to finance government spending undermines the main task of the central bank.
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