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Resurgent Hawks: ECB’s Power Restored

German Central Bank (Bundesbank) President Jochen Nagel attends the weekly cabinet meeting at the Chancellery in Berlin, Germany, Wednesday, July 5, 2023. (AP Photo/Michele Tantussi)

Initially created on the model of the Bundesbank, the ECB had evolved profoundly under Mario Draghi, but German influences have partially taken over.

The team that writes the speeches of Joachim Nagel does not stop. Since taking office in January 2022, the President of the Bundesbank has multiplied interventions and interviews, much more than his predecessor, Jens Weidmann. The most hawkish of all the members of the Governing Council of the European Central Bank intends to raise his voice to advocate a relentless fight against inflation, hammering home his message. “It is too early to declare victory against inflation” (July 17). “If you let inflation go on too long, it’s very hard to get rid of it” (July 10). “Interest rates are likely to have to stay higher for longer” (July 6).

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Thursday, July 27, the ECB is expected to announce a further increase in its interest rate, in principle by 0.25 points, to 3.75%. This will be the ninth increase in nine meetings, taking the interest rate to its highest level since 2000. It is the fastest monetary tightening in its history. It is also, in part, a surprise: for the past year, the ECB, which had acted in active support of the economy from 2012 to 2021, has surprised by its tougher approach than expected. Initially, financial markets anticipated an interest rate that would rise to 3%; now they are betting on 4% instead.

Of course, the circumstances explain a large part of this unprecedented action. Inflation peaked at 10.6% in October 2022. For the ECB, whose mandate is to keep price inflation at 2%, it was impossible to sit idly by. But for Nicolas Goetzmann, head of economic research at the management company Financière de la Cité, the arrival of Mr. Nagel at the Bundesbank marked a turning point: “He changed the balance of power within the ECB. »

This article is originally published on lemonde.fr

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