ECB Accused of Bias, Climate Failures in Public Listening Event
(Bloomberg) -- The European Central Bank is fielding the clearest calls yet for more democratic accountability, tougher action on climate change, and new stimulus that more directly helps workers rather than boosting asset prices.
In an “ECB Listens” event as part of the institution’s strategic overhaul, labor unions, environmental campaigners and social groups urged officials to be more mindful of the side effects of their policies.
Acknowledging that the session opened the door to huge issues, President Christine Lagarde noted the “unconventional questions” that are not always top of the agenda at the ECB.
“Your comments and views are not necessarily comfortable, and some of them are a little bit off the beaten track and outside the box in many ways,” she said during the discussion. “But that’s the beauty of this exercise.”
Wednesday’s event, which took place shortly after climate-change protesters outside the ECB’s Frankfurt headquarters burned a model of the planet, fed into a wide-ranging review that was launched shortly after the beginning of Lagarde’s leadership.
The ECB has failed to hit its inflation goal despite trillions of euros of stimulus, and the assessment is intended to investigate how the central bank should address the radical economic changes since the last review in 2003.
Greenpeace campaigner Adam Pawloff urged the central bank to abandon its principle of neutrality, whereby its bond purchases mirror the make-up of the market, helping to reduce financing costs for large polluters.
Such purchases “makes it easier for them to damage the climate and environment even more so than they were already doing,” said Henry Eviston, a policy officer from the World Wide Fund for Nature.
Lagarde, who’s been vocal on the issue of climate change, said addressing environmental issues is a “priority.”
Other participants in the discussion argued that the ECB “deliberately favors short-term financial support to banks and governments over saver protection.” That view was voiced by Guillaume Prache, managing director of the NGO Better Finance.
“It is not only a social and economic issue,” but also “a democratic issue,” he said. “Financial repression is sacrificing the most worthy middle classes, and the middle classes are the main pillar of democracy.”
Wolfgang Kuhn from Shareaction said the ECB’s actions have skewed markets and the public is losing faith in the institution.
“We believe the ECB’s credibility is at stake,” he said. “Not from the people who watch 5-year, 5-year forward inflation swaps or bet on harmonized consumer price indexes, but from the people who see the value of their money erode from years of inflation-fighting.”
Chief economist Philip Lane began the event by promising the ECB will seek a sweet spot between too-high and too-weak price growth.
“We know the absence of price stability is damaging,” Lane said. “The sweet spot we think is low inflation, but with a significant enough buffer above zero that we do make sure we don’t fall into deflation.”
Yet while headline inflation has been muted -- and is currently below zero for the first time in four years as the pandemic crushes the economy -- that’s in contrast with rising real estate and rental costs, which some argue has been fueled by the ECB’s cheap-money policies.
Sorcha Edwards from Housing Europe said the result is that affordable housing has become out of reach for many euro-area citizens.
“Housing is something that we have to be mindful of, simply because of the cost it represents in a family’s budget,” Lagarde said. “I think this issue of housing is going to come back to haunt us in the final deliberation over how we actually measure prices.”
Another concern raised was accountability and transparency. In response, Lagarde announced that the ECB will unveil new procedures for whistle-blowing on Wednesday.
These will “really put the institution on par with those that take responsibility, transparency and accountability seriously,” she said.
Still, she also noted that the listening event, which will be adopted by national central banks across the euro zone before the review wraps up around the middle of next year, can’t soothe all concerns.
“We want to hear all voices,” Lagarde said. “It doesn’t mean that all of you are going to be satisfied with the outcome, because it might be different from what you have in mind.”
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