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The view from London: The ECB is ‘failing’
How are economists reacting to the European Central Bank’s stimulus package? Well, the general sentiment appears to be relief, relief that the ECB is beginning to seriously address stagnant growth and the threat of deflation.
On June 11, the ECB’s negative interest rates took effect; motivating banks to move money out of holdings and into the greater economy. Negative interest rates have never been tested on such a large scale before but, again the decision appears to have been well received.
The current level of inflation remains dangerously low and achieving the target inflation rate of 2 percent will require substantially more work from the ECB. Jonathan Portes, Director of the National Institute of Economic and Social Research, believes the ECB has been failing to address the problem for too long. Portes thinks the ECB is, “failing in their mandate” to deliver an acceptable inflation rate and is pleased that action is finally being taken. A similar sentiment is argued by Mark Littlewood, Director General of the Institute of Economic Affairs.
Littlewood argues that the economy’s transition towards more normalised interest rates will be difficult for the general public to adjust to. He fears people have become accustomed to low mortgage rates and changing mind-sets will be a difficult task for the ECB, even though a change is required.
The ECB expects inflation to return to 1.1 percent by 2015 and 1.6 percent by 2016. Despite the number of critics and the focus on opposition to the ECB’s lack of action, the EU still elicits support from the majority of voters.
02:43 minutes
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