The team that writes the speeches of Joachim Nagel does not stop. Since taking office in January 2022, the President of the Bundesbank has multiplied interventions and interviews, much more than his predecessor, Jens Weidmann. The most hawkish of all the members of the Governing Council of the European Central Bank intends to make his voice heard to advocate a relentless fight against inflation, hammering his message. “It is too early to declare victory against inflation” (July 17). “If you let inflation last too long, it’s very hard to get rid of it” (July 10). “Interest rates are likely to have to stay higher for longer” (July 6).
Thursday, July 27, the ECB should announce a further increase in its interest rate, in principle by 0.25 points, to 3.75%. This will be the ninth increase in nine meetings, taking the interest rate to its highest level since 2000. This is the fastest monetary tightening in its history. It is also, in part, a surprise: for a year, the ECB, which had acted in active support of the economy from 2012 to 2021, surprised by its tougher approach than expected. Initially, the financial markets anticipated an interest rate that would rise to 3%; now they are betting on 4% instead.
Of course, the circumstances explain a large part of this unprecedented action. Inflation peaked at 10.6% in October 2022. For the ECB, whose mandate is to keep price inflation at 2%, it was impossible to sit idly by. But for Nicolas Goetzmann, head of economic research at the management company Financière de la Cité, the arrival of Mr. Nagel at the Bundesbank marked a turning point: “He changed the balance of power within the ECB. »
Influence Battle
The Governing Council, the decision-making body, is made up of twenty-six members: the governor of each of the twenty central banks of the euro zone countries and six members of the executive board, based in Frankfurt. Between them is permanently played a battle of political and intellectual influence.
When Mr. Nagel arrived at the Bundesbank, the war in Ukraine had not yet started. Christine Lagarde, the President of the ECB, said in December 2021 that it was “very unlikely” that interest rates rise in 2022. Immediately, Mr. Nagel opposes this line, asking to stop debt purchases and raise rates. While Philip Lane, the chief economist of the ECB and member of the executive board, ranked in the camp of the doves, still minimizes the risks of inflation, which he does not consider sustainable, the German is already mentioning the ” hazard “ of a price-wage spiral.
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