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The European Central Bank (ECB) is expected to reaffirm its expansive monetary policy stance from the past decade in its ongoing strategic review, despite external calls for greater introspection following recent inflationary pressures and substantial financial losses, multiple ECB policymakers Reported.
Launched in March, the review seeks to re-evaluate the ECB’s monetary policy framework, including the continued relevance of quantitative easing (QE), negative interest rates, and forward guidance—tools that defined the institution’s response to the eurozone’s prolonged low-inflation environment.
Limited Revisions, Endorsement of Past Policies Likely
According to senior officials familiar with internal discussions, the review is expected to yield minimal revisions to the ECB’s strategic direction, last updated in 2021. Policymakers have indicated that the central bank will largely defend its unconventional policy tools, especially during periods of ultra-low inflation and interest rates.
A key phrase—calling for “especially forceful or persistent” action during periods of subdued inflation—is likely to remain in the updated strategy document. This phrase underpins the ECB’s justification for large-scale asset purchases and other stimulative measures.
While the review is ongoing and formal conclusions are pending, ECB officials speaking anonymously noted that the institution is unlikely to issue strong self-criticism over its delayed response to the inflation surge of 2021–2022.
An ECB spokesperson declined to comment on the strategy review.
Diverging Views Within the ECB
Some internal dissent has emerged, with Belgium’s central bank governor Pierre Wunsch advocating the removal of the forceful action clause, and Dutch governor Klaas Knot and ECB Executive Board Member Isabel Schnabelurging more restrained use of QE. They argue that while short, targeted QE interventions may be effective, prolonged stimulus comes with fiscal and institutional costs.
Despite these concerns, the atmosphere at a recent ECB retreat held in Porto on May 6–7, where preliminary findings were discussed, was described as collegial. Feedback from that meeting is being incorporated into the final strategy document, which is expected by early summer.
ECB staff reportedly presented internal analyses indicating that its stimulus programmes had overall positive macroeconomic impacts, supporting the rationale for keeping these tools in its policy arsenal.
Forward Guidance to Be Used Sparingly
While QE is set to retain its strategic justification, there is broad consensus that forward guidance—the practice of pre-committing to a path for interest rates—should be applied with greater caution. Critics argue that forward guidance contributed to the ECB’s sluggish response to rapidly rising inflation during 2021–2022, undermining its price stability mandate.
Some governors had hoped for a more critical reflection on the bank’s policy missteps during that period, but insiders suggest that any retrospective analysis in the final strategy is likely to be measured and balanced, rather than a fundamental repudiation.
Acknowledging Financial Strains and Uncertainty
The strategy document is also expected to reaffirm the ECB’s commitment to a “symmetric” 2% inflation target, signaling that both inflation undershoots and overshoots are equally problematic. It will also acknowledge the heightened uncertainty currently shaping global monetary policy environments.
However, there remains recognition of the financial costs associated with past stimulus. The ECB’s extensive bond purchases and reserve creation—initially intended to prevent deflation during crises—have contributed to balance sheet losses, especially as interest rates rose.
The Eurosystem’s national central banks are now incurring costs, paying approximately 2.25% interest on €2.8 trillionin bank reserves. While central banks are not profit-oriented institutions, these losses erode dividend flows to national governments, raise questions about institutional accountability, and may weaken public trust in monetary authorities.
Conclusion: Balancing Continuity with Credibility
As the ECB nears the conclusion of its strategic review, it faces the delicate task of defending its legacy policies while restoring confidence in its capacity to respond more swiftly to economic shocks. Stakeholders across the eurozone will be watching closely to assess whether the final strategy strikes the right balance between policy continuity and adaptive reform.
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