How the ECB should respond to a German fiscal boost

In order to make sure that a German fiscal expansion helps the eurozone economy, the ECB needs to reaffirm its intention to keep monetary policy accommodative until the single currency area’s economy has fully recovered. The ECB should communicate more strongly that it intends to let inflation overshoot its target for a while, to make up for missing its target several years in a row. Such a renewed commitment would allow the German economy to mildly overheat, help to reduce Germany's current account surplus – but without hurting the rest of the eurozone with higher interest rates and a stronger euro.

ESO: Background information: Macron, Merkel and the Future of the Euro (CER Bulletin No. 114, June/July 2017) http://www.europeansources.info/record/macron-merkel-and-the-future-of-the-euro/

Carnegie Europe: Strategic Europe, 01.09.17: Germany and the future of the Eurozone (et al) http://www.europeansources.info/record/germany-and-the-future-of-the-eurozone/

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