ECB gets ready to target the ‘green spread’

This week Christine Lagarde, president of the European Central Bank, gave the strongest hints so far about how she and her colleagues may update the ECB’s strategy in a review now under way. The speech merits close reading; ECB-watchers will have been excited by the suggestions Frankfurt may follow in the footsteps of the Federal Reserve and not just commit to a clean 2 per cent inflation target but even “catch up” with subdued inflation by letting prices grow faster than the target pace for a period.

But here I want to draw your attention to another speech, by Lagarde’s Executive Board colleague Isabel Schnabel. On Monday, she gave the punchiest argument I have seen for the ECB taking an active role in pushing forward the decarbonisation of the eurozone economy. The key message was that “collective action, by governments, firms, investors, households and central banks, including the European Central Bank, is required to accelerate the transition towards a carbon-neutral economy and correct prevailing market failures”.

The ECB itself has clearly intensified its effort to understand the economics of the climate challenge, and the speech brings surprising economic knowledge to the table. Schnabel makes clear that the economic costs of climate change are not just something…

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