The ECB’s lack of credibility could hamstring Europe’s recovery

AT POINTS INECBECBECB’S the past decade the European Central Bank () was the only institution standing between the euro zone and financial oblivion. Europe’s problem was budgetary inhibition and insufficient risk-sharing. Monetary policymakers were the only game in town. No longer. Earlier this year the European Union agreed to issue joint debt to fund a fiscal response to the pandemic, sending confidence in the currency union surging. Now the most pressing problem in euro-zone economic policy stems from Frankfurt. It is that hardly anyone believes the is serious about hitting its inflation target of “below, but close to, 2%”.Covid-19 continues to leave most of the world with a 90% economy in which activity is depressed (see ). Disinflation is the natural consequence. In August euro-zone prices fell for the first time in four years. But it is the job of policymakers to ensure that shocks do not become prolonged disinflationary slumps. The own forecasts, released after its monetary-policy meeting on September 10th, show that it is failing. Inflation will rise over the next three years—but only to 1.3%. Financial markets expect it will stay around that level for most of the next decade. Professional forecasters are only a little more optimistic. The latest force holding down prices is a strong euro. The single currency has appreciated by 5.4% against the dollar this year.