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In the last two years, the European Central Bank focused its activities on containing the rise in inflation, led by the energy crisis that hit Europe. Monetary policy has been implemented to reduce support for demand and avoid any risks of a persistent upward shift in the expectations related to inflation levels. The energy crisis has also had a direct impact on the EU’s green transition. According to the ECB, concrete policy actions are needed to make the most of the opportunities provided by the actual situation.

This means expanding the share of renewable energy supplies in order to reduce the EU’s dependency on fossil fuels, which would also benefit price stability. In the past decade, renewable energy has been linked with declining prices, which can ease the burden of rising inflation on European economies. In this perspective, as officials from the ECB have stated, it is essential to achieve a proper balance between supporting energy security and ensuring price stability while keeping the green transition on track for all the EU member states. This is a key feature, as the ECB is concerned by the emerging discussion about the trade-off between energy security, the green transition, and price stability. Again, officials from the European Central Bank confirmed the commitment to address climate change and promote the green transition, considered necessary to fulfill the ECB’s price stability objective.

In the view of the European Central Bank, an orderly transition to a green economy is an opportunity for European citizens, as well as firms and financial institutions, to take advantage of clean and cheaper energy, technological innovations, and new business. Finally, let’s not forget that the European Central Bank set the objective of gradually decarbonizing its corporate bond holdings on a path that is aligned with the goals of the Paris Agreement.

Written by: Francesco Marino