A few days before the European elections, the role of the European Central Bank is back in the spotlight… in particular that which it must play in Europe’s ecological transition.
However, for some European politicians, the guardian of the euro is not, for the moment, doing enough. At least that’s Emmanuel Macron’s opinion. Recalling, during a conference at La Sorbonne, at the end of March that investments for the decarbonization of Europe will require between “ 650 to 1,000 billion euros more per year, which cannot be postponed until tomorrow », the French president pointed out the incompatibility between the monetary objectives of the ECB and this financing.
“ We cannot have a monetary policy whose objective is solely an inflation objective, moreover in an economic environment where decarbonization is a factor in structural price increases. “, he clarified.
After more than twenty years of existence, the Frankfurt institution has, in fact, kept its one and only mission “ to maintain price stability (with) an inflation rate of 2% in the medium term », in its statutes.
An inflationary ecological transition
Gold, ” the ecological transition will probably be inflationary », assures Patrick Artus, economic advisor to Natixis, interviewed by The gallery. Between the carbon tax which will increase the prices of carbon-based goods for consumers, the financing of massive renewable energy production capacities and investments in equipment, machines and other buildings that emit less CO2, the world of tomorrow should be more expensive than that of today, estimate many economists.
A dynamic which would then push “ the ECB to increase its key rates each time inflation exceeds 2% for a certain time, which will increase the cost of credit and therefore, in turn, public and private investments in the ecological transition », explains Jézabel Couppey-Soubeyran, economist specializing in monetary policy and lecturer at Paris 1 University.
In this logic where monetary policy would slow down the financing of the decarbonization of the economy, “ the European Union will not be able to respect its commitment to carbon neutrality by 2050, unless it supports public financing through tax increases and private investment through a reduction in shareholder remuneration to direct money towards the decarbonization of their activities », predicts Patrick Artus.
Include transition financing in the ECB’s mandate
Emmanuel Macron’s point of view is therefore shared by several economists who believe that increasing the inflation target to 3 or 4% would avoid this counterproductive reaction. Especially since this reform of the ECB could be implemented at the sole initiative of the Governing Council which could decide to increase its inflation target or broaden its mission to include financing the decarbonization of the Europe, like the American Federal Reserve which is juggling between maintaining inflation and growth.
“ What prevents the greening of monetary policy are therefore not institutional obstacles, but doctrinaire ones. », says Jézabel Couppey-Soubeyran.
And for good reason, ” Governors of Northern European countries will refuse to change the ECB’s mandate because they have a rustic view of monetary policy », Points out the Natixis economist.
Fear of loss of control over inflation
The latter are, in fact, very vigilant about the risk of seeing inflation slip away, which would weigh on household portfolios. “ Because, if European inflation is permanently higher and wages do not follow, low incomes will suffer and there will be no popular support for this transition. », warns Jézabel Couppey-Soubeyran. At a time when the European far right is fed up with restrictive measures for the ecological transition, the subject of social acceptance is therefore at the center of the concerns of political parties.
A solution could come from indexing salaries to inflation. “ But many economists consider this idea dangerous, because it could fuel inflation with a price-wage loop mechanism. », warns Patrick Artus.
Raising wages to fight inflation: the risk that the remedy will make the disease worse
The risk of a loss of credibility and independence of the ECB
Another problem, “ the ECB faces a real risk of loss of credibility », alerts Eric Heyer, director of the analysis and forecasting department at the OFCE. The credibility of the Frankfurt institution – which partly defines the value of the euro – comes from its rigor on its inflation objective and its consistency with other central banks. To avoid causing a fall in the price of the euro, the ECB should therefore clearly justify its change of objective.
“ The ideal would be for its inflation target to be modified by maintaining the 2% objective, but specifying that it is “excluding the impact of the ecological transition”estimates the OFCE economist. “But we do not have the tools to determine what part of inflation is due to financing for decarbonization “, he regrets, affirming that a modification of the mandate of the ECB is ” difficult to envisage and not desirable “.
Other avenues for a monetary boost to the ecological transition
Aside from the thorny subject of modifying the ECB’s mandate, there are plenty of ways to get monetary policy to further support the ecological transition.
In The power of money, economists Jézabel Couppey-Soubeyran and Augustin Sersiron propose that the ECB can create money without debt or asset purchases in return, to finance investments in the ecological transition. A measure that could be effective, “ but [qui] would create extreme monetary inflation », warns Patrick Artus.
Another proposal from these same economists: set up loans at preferential rates for green investments. “ To finance the unprofitable part of transition investments, the ECB could lend to banks at lower rates on the condition that they increase the share of green credits in their balance sheets. », explains Jézabel Couppey-Soubeyran. “ But how do you judge whether an investment is green? » asks Eric Heyer who is worried about the risk of loss of independence of an ECB which would sort low-carbon projects itself “ although that is not his role », adds the OFCE economist. The latter would therefore prefer that the European Union put in place a major European plan at the budgetary level which is supported by monetary policy. “ Out of 60 billion euros of public investments per year, of which 30 billion would come from the debt, the ECB could buy back the 30 billion per year of debts from the States », suggests Eric Heyer.
