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Lagarde: Treaties Safeguard Against Fiscal Dominance/Monetary Financing

ECB

Q: Is the new strategy a sign that the ECB is under fiscal dominance? The ECB could finance the entire deficit of EZ countries this year – is this really not monetary state financing?

  • A: Our strategy is to deliver on our mandate for price stability. We have revised our measurement of the price stability objective by clarifying the numerical target. We have explicitly indicated that it is symmetric. We have identified the need when at the lower bound to react forcefully and persistently. The strategy is not intended to put off hiking interest rates. It is not meant to keep rates for longer. It is intended to deliver on our objective of meeting the 2% target. Once we reach 2%, other decisions will be made.
  • If central banks had not done what they had done and governments had not used fiscal policy, how many more people would have been unemployed and how much damage would be done to the economy. We have safeguards in the treaties with respect to fiscal dominance/monetary financing.

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