The changes bring the 19-country bloc to a place that the Federal Reserve, Bank of Japan and others already occupy: a recognition that the pace of price increases was too slow in the aftermath of the global financial crisis and that it’s fine to indulge a bit of an overshoot. The idea is that it helps inflation settle in the vicinity you desire. For most central banks, there is a “2” somewhere in that target. By having more flexibility, officials theoretically have a freer hand to stoke expansions or respond to blowups and cataclysms. At the core of the ECB’s response to Covid-19 has been a 1.85 trillion-euro ($2.2 trillion) bond-buying program to hold borrowing costs at rock-bottom levels.
This isn’t an upheaval. In practical terms, the ECB has already evolved to the point where growth and stability have taken priority. Former ECB President Mario Draghi’s 2012 dictum of “whatever it takes” guides decisions today far more than the inflation aversion that was a hallmark of the German Bundesbank, once the most powerful monetary institution in Europe. (The ECB’s first chief economist, Otmar Issing, held the same position at the Bundesbank and helped guide the new organization in its infancy.) Draghi’s philosophy set the ECB on the road to where it is today.