Arne Weychardt

30.05.2017, Europa Briefing: Low interest rates: Is the ECB’s policy correct?

Since 2013, inflation in the euro area has been too low. In order to revive the economy and bring inflation back to target, the European Central Bank has implemented a low interest-rate policy which includes a bond-buying programme known as Quantitative easing or QE. The ECB’s measures, including historically ultra-low rates, also bear risks. For example, some observers fear the formation of a bubble in real estate and stock markets or complain about one-sided capital gains for wealthy households.

Contact Person

Dr. Katharina Gnath

In our first "Europa Briefing", we explain when low interest rates become problematic and what the European Central Bank (ECB) is doing to increase inflation. We also look ahead and look at what can happen if inflation continues to remain as low as before. We also explain what governments in the euro area must now do to resolve the conflicts surrounding low-interest policy.

In the publication series “Europa Briefing”, the Bertelsmann Stiftung and the Jacques Delors Institut – Berlin cover key topics of European politics and present possible scenarios: What is the problem? What might happen next? And what can politics do now?

The ECB’s policy was decisive in tackling the euro-area crisis. By 2018, however, it must decide what it believes is more important: price stability or economic stimulus for crisis countries. When inflation returns to target, the ECB should focus on its mandate and abandon the crisis mode. The member states have the responsibility to reform themselves.

Philipp Ständer, Jacques Delors Institut – Berlin

The complete Europa Briefing can be found here. All the publications of the joint European project with the Jacques Delors Institut are available at www.strengthentheeuro.eu

How has inflation in the euro area been developing in recent years? What does ECB interest rate policy mean for indebted private households? And how is the ECB's quantitative easing (QE) program, which will expand the money base by buying private or public securities. Our infographics explains: