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Exiting the Very Accommodative Monetary Policy : Stakes and Challenges Facing the ECB

Olivier Klein * Professeur affilié, notamment cours de macroéconomie financière et cours de politique monétaire, co-responsable de la Majeure et du Master de Financial Economics, HEC ; directeur général, BRED. Contact :
Thibault DUBREUIL Majeure Finance HEC Paris. Contact :

The ECB has sought to address the various aspects of the crisis that has affected the euro area by building an unprecedented policy combining old instruments and new measures.

This accommodative monetary policy proved to be essential to preserve the economy from deflation, to create the conditions necessary for a return to growth, as well as to save the physical integrity of the euro area. The risks of maintaining unconventional measures today call for their gradual withdrawal. This low, even negative, interest-rate policy, by supporting borrowers, indeed affects the remuneration of savers and lenders, and can therefore encourage excessive risk-taking and speculative behavior that can lead to asset price bubbles. Also affecting the revenues that banks derive from their retail activity, it could likewise sooner or later restrict the ability of banks to keep pace with credit growth during the recovery period. Its normalization, unprecedented and subject to a high degree of uncertainty, for these reasons, has become necessary but is delicate. A rise in interest rates can therefore only be very cautious and gradual, in particular to avoid both the triggering of a bond market crash in the event of a sudden and unexpected rise and, in a context of high level of indebtedness among all economic agents, an excessive increase in their debt-service costs. The exit from this accommodative monetary policy reinforces even more the need to strengthen European macroeconomic stability. In this regard, a better coordination and a truly counter-cyclical nature of economic and fiscal policies as well as the implementation of structural reforms by Member States are important.

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