25 years of ECB: With determination against high inflation

Updated: 05/24/2023, 21:12

Frankfurt/Main. On the occasion of the 25th anniversary of the central bank, ECB President Christine Lagarde emphasized the determination of the euro currency guardians in the fight against the current high inflation and called for further steps towards unification in Europe. “It’s not enough to have a monetary union – it’s important to continue the unification process,” said Lagarde on Wednesday evening at the opening of a ceremony in Frankfurt. “The Union should be multi-faceted, encompassing fiscal, financial and banking areas for greater integration, especially if the euro is to consolidate its status as an international currency.”

Among others, Lagarde welcomed Chancellor Olaf Scholz (SPD), EU Commission President Ursula von der Leyen, the President of the EU Parliament, Roberta Metsola, and EU Council President Charles Michel to the ceremony at the ECB headquarters. Former ECB Presidents Jean-Claude Trichet and Mario Draghi also attended. The first president of the joint central bank, Wim Duisenberg, died in 2005.

Stable euro and low inflation

Lagarde assured that the ECB will fulfill its priority task of a stable euro and bring inflation back to its medium-term 2% target “in the near future”. In an article published in newspapers in all 20 euro countries on Wednesday, Lagarde wrote that inflation is currently “too high and is likely to stay too high for too long”. The ECB has therefore “raised interest rates in record time” and will “raise them to sufficiently restrictive levels and keep them there for as long as necessary”.

Because of the persistently high inflation that has been weighing on companies and consumers for months, the monetary watchdogs have raised interest rates seven times in an unprecedented series since July 2022 after years of zero and negative interest rates. The key interest rate in the euro area is now 3.75 percent.

The ECB started its work 25 years ago

The ECB started its work on June 1, 1998. On January 1, 1999, the age of the euro began for 11 of the then 15 member states of the European Union: The European common currency was initially used electronically as a settlement currency alongside the D-Mark, Lira, Schilling and Co. On January 1, 2002, these national currencies disappeared , the euro was brought into circulation in notes and coins. Since Croatia’s accession on January 1, 2023, the common currency has now been the official means of payment for more than 346 million people in 20 EU countries.

Chancellor Olaf Scholz (SPD) said at the ceremony that he was confident that other countries would join the euro area. “The euro has proven to be one of the most successful European integration projects.” The ECB is an “anchor for stability in the euro area” and he “fully supports” the efforts of the central bank in the fight against high inflation, said the Chancellor.

Further rate hikes announced

After the latest interest rate hike at the beginning of May, Lagarde made it clear that the ECB was not finished yet: “We know that we still have some ground to make up.” several rate hikes required” to get inflation under control in the long term. Higher interest rates make loans more expensive, which can curb demand and counteract high inflation rates.

Former ECB President Trichet expects the central bank to continue to struggle with higher inflation rates. He sees three reasons for a “longer-term higher inflationary pressure,” Trichet told the “Handelsblatt”: “First, globalization will no longer ensure lower costs and prices as it has in the past ten years.” There is also “growing inequality” and the need to make the economy more climate-friendly.

New series of high-tech banknotes

The euro bills should also be and remain reliable. “We are working on issuing a new series of high-tech banknotes to prevent counterfeiting and reduce environmental impact,” ECB Executive Board member Fabio Panetta told French daily Les Echos. The ECB announced in December 2021 that it would involve the public in the process of redesigning the banknotes. According to information given at the time, the Governing Council of the ECB wants to decide in 2024 on the production of new banknotes and when they could be put into circulation.

Panetta emphasized that the parallel work on a digital euro does not mean the swan song for cash. “We will make banknotes available to citizens for as long as there is demand for them.” The ECB is expecting a legislative proposal from the EU Commission in June that will form the legal framework for the digital euro. In October, the Governing Council of the ECB will then decide whether a preparatory phase for the development and testing of the digital euro should be initiated. “This phase could last two or three years. If the Governing Council and European lawmakers – member states and members of the European Parliament – agree, we could launch the digital euro in three or four years,” said Panetta.