The ECB’s Ad hoc Monetary Policy: Will its Lack of Forward Guidance Finally Burst the Eurozone?

Most experts agree that central banks need to provide “forward guidance” for monetary policy to be effective. But exactly what forward guidance is the ECB giving by its current interventions, real and oral? Apart from the rhetoric of interest rates to remain low for a long time, the ECB offers only paltry information about the use of its instruments and their effectiveness. The ECB’s “ad hoc” monetary policy rather leaves the future development of monetary aggregates, interest rates, prices and public finances unpredictable let alone uncontrollable. Its series of discretionary interventions distort market signals and exacerbate price fluctuations, effectively undermining stable economic expectations. On current trend, ECB policy may make a Eurozone break up less distant as it prevents investment as well as regulatory and economic convergence between Eurozone countries.