Spring Meetings

     Click here for the photos

 

OVERVIEW

 

Bank of Italy Governor Fabio Panetta will discuss the role of ECB monetary policy in guiding inflation back to target amid high uncertainty and navigating looming transformations. While euro area inflation has declined, services inflation remains elevated. Economic activity has been subdued and uneven, with manufacturing recovery lagging behind other sectors. The conversation will also explore the capital markets union and a potential digital euro launch.

 

REPORT

 

Key Points:

• Monetary policy path of the ECB. The path of the ECB monetary policy will continue to be driven by inflation and real economy developments The current combination of low inflation and weak growth is conducive to further loosening of the ECB’s monetary policy stance. At this point, the ECB is still far away from the neutral rate, but it is not excluded that it could go below the neutral rate, given the pace of the disinflation and the weakness of the real economy.  Due to the recent more unusual inflation developments and the necessary monetary policy responses, the ECB has adopted a more careful approach to communication.
• Banking Union and cross-border mergers. The conjunctural situation has pushed up bank profitability, but this is not expected to last. To maintain profitability, mergers and acquisitions might be needed, including at a European level, creating pan-European banks. A monetary union requires some form of risk sharing, underlining the importance of the Banking Union and banks that operate cross border in the Euro area.
• Low growth and need for structural changes. Europe lags significantly behind the US in productivity and innovation, which is to most part driven by the tech sector, into which the US invests heavily.  Individual EU Member States cannot match the investments taking place in the US or China and therefore there is a need for a common European approach to investment in common public good, such as innovation.
• Digital euro. With the decreasing use of cash and a rise in online purchases, the ECB is working on introducing a digital Euro as a means of payment for retail transactions The related legislation is currently under consideration in the European Parliament. The digital euro would also be beneficial to preserve the international role of the euro and payments will increasingly use the distributed ledger technology (DLT).

Quotes:

"There is a combination of low inflation, weak growth, and clearly this is conducive to further loosening of our monetary policy stance. How much? Well, I will not venture here into an analysis of how low we should go. I think we should continue and the direction of travel is, in my view, clear." - Fabio Panetta

"In the last decade, investment in AI was 330 billion USD in the US, 100 billion USD in China, 20 billion in the Euro-area. Now we have to close this gap. Can we do it in a piecemeal fashion at the country level in the Euro area? No. No individual Member State in the Euro area has the size and the capacity to match the investments that are taking place in the US and in China. This is why the Draghi report, and many other analyses, suggest that we must invest on a European level on common European public goods." – Fabio Panetta

"The digital euro will be useful to preserve the international role of the Euro because many of the international transactions in the future might take place through a technology that is DLT-based and if you don’t have the right technology to interact with the private sector, then the role of your currency would become less relevant." – Fabio Panetta

Contributor: Sebastien Vanhoucke

 

 

SPEAKER

 

 

MODERATOR