Mario Draghi gives opening speech at the European Central Bank’s (ECB) Cultural Day.

In his opening address at the European Central Bank’s (ECB) Cultural Day on Nov. 3 in Frankfurt, Germany, ECB President Mario Draghi emphasized the need to manage inflation within the euro area.

“What has not changed, however, is the ECB’s mandate to deliver price stability for the euro area, which we define as an inflation rate of ‘below but close to 2 percent’ over the medium term,” he said.
 

Commenting on the ECB’s recent performance and actions, Guntram Wolff, director of Bruegel, a Brussels-based economic think tank, urged bank authorities to shift toward more active risk management. Wolff said it was unwise to ignore threat of undershooting inflation expectations, given that various inflation parameters together predict strong deflationary tendencies at work in the euro area. If the ECB continues to enact constrained fiscal measures, chances are that the euro area will inevitably be mired in a low-inflation trap, he said.

It seems that the ECB is unable to face squarely the somber status quo of the European and global economy—deteriorating inflation expectations, core inflation at less than 1 percent and uncertainties about the soft landing of China’s economy. Bearing in mind the larger picture, Wolff suggested that the ECB should at least sustain its ongoing QE program while quelling rumors that it would yield to political pressures and end the program prematurely.
 

In fact, the ECB should supend the 25 percent purchase limit on sovereign bonds rated triple-A and implement measures to support the corporate bond market, Wolff said. Governments of eurozone member states, in turn, should implement economic reforms to create new investment opportunities, he said.

Yao Xiaodan is a reporter at the Chinese Social Sciences Today.