Good morning.
With gas prices rising as a consequence of the US and Israeli strikes on Iran, talks of interest rate hikes in Europe have returned.
Europe’s main gas price benchmark has nearly doubled since the attacks started.
German conservative MEP Markus Ferber has since warned that conflict in Iran could trigger another energy crisis, calling on the European Central Bank (ECB) to “stay vigilant.”
ECB’s chief economist Philipp Lane then told the Financial Times on Tuesday that for now he does not see a reason to change central bank rates but promised to “closely monitor developments.”
Having covered the 2021-2023 energy crisis closely, it’s worth revisiting what actually occurred during that episode.
Energy price shocks can quickly spread through the economy. The question is whether the ECB is well-positioned to deal with such shocks.
By its own admission, it isn’t. Inflation-fighting measures that worked in 2021–2023 were fiscal — and included tax cuts, subsidies, and gas storage targets — not monetary.
The rate discussions that emerged this week picked up right where the rate hikes of 2022-2023 left off, making it worth revisiting how the ECB’s energy-crisis policies played out at the time, and what lessons we might draw from them.
Wester van Gaal, economy editor
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