Peter Praet is absolutely right that the European Central bank is destined for a period of high inflation because high public debts dampen the Bank’s willingness to raise interest rates quick enough. /Politico, May 14, 2021/
The ECB is in a somewhat fragile position due to the “two-in-one” structure of the Eurozone.
Both sides – the ECB and three of the Bank’s former top economists- seem to be right. On one hand raising interest rates will hurt the Club Med economies, on the other hand shying away from policy changes will fuel higher inflation.
In my view, however, there is a double-sword solution handling the dilemma. The ECB should cautiously lift interest rates, admitting the real nature of inflation and restoring credibility. At the same time, they can launch targeted lending schemes for the Eurozone’s business sectors – like the former “Funding for Lending Scheme” of the BoE and the “Funding for Growth Scheme” of the NBH – in order to boost employment and growth.
Governor Matolcsy, MNB, the Central Bank of Hungary
“Re: Former ECB economists warn of Eurozone debt trap if inflation comes back”