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Lagarde Faces Call for Lower ECB Inflation Goal in Policy Review

Boris Groendahl and Alessandro Speciale

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When Christine Lagarde conducts a rethink of the European Central Bank’s policies and tools during her impending presidency, her new Austrian colleague will be keen to contribute.

“I look forward to the strategic review,” Robert Holzmann, the governor of the Austrian central bank who began his role this month, said in an interview in Helsinki on Friday. “I’m a fan of bringing things out in the open.”

The 70-year-old economist who took over from Ewald Nowotny at the start of September highlighted two ideas he plans to bring to the debate: Lowering the ECB’s inflation target and ending the ECB’s policy of silence about how members of its rate-setting Governing Council argued during meetings.

Lagarde, who starts in November, is set to preside over the review at a time when central banks around the world who have struggled to revive inflation are wondering whether tweaking targets, either up or down, would help. Olivier Blanchard, a former chief economist at the International Monetary Fund, has argued in favor of doubling the Federal Reserve’s goal to 4%.

Holzmann says the ECB’s current target of “below, but close to, 2%” may have become too high. While it was appropriate when some headroom was needed to allow real wages to fall without cutting nominal pay, “this argument doesn’t hold anymore,” he said.

“As we have inflation dynamics which put us at 1.5%, why not set the goal at 1.5%?” he added. “Why do we want to spend a lot of money, a lot of action to move from 1.5% to 2%, if at 1.5% we have stability but at much lower cost?”

Holzmann was among the group of ECB officials opposing President Mario Draghi’s ultimately successful push to reactivate quantitative easing on Thursday.

The ECB will publish the account of this week’s Governing Council meeting on Oct. 10. While it will likely provide a more detailed view of the discussion, the document won’t reveal names behind individual arguments that were brought forward.

“I’m a fervent supporter of the independence of central banks,” Holzmann said. “But the more independent you are, the more you have to be held accountable.”

Even though the Austrian said he accepts the rationale behind the non-disclosure, which includes shielding governors from pressure at home and keeping them focused on the interests of the euro area as a whole, he’ll advocate change.

“I will try to encourage my colleagues to move to a new voting system, to count the votes and publish them,” Holzmann said. “This would help to make people more accountable, because then it’s not possible to sit back and hide behind the majority.”

--With assistance from Maria Tadeo and Allegra Catelli.

To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net;Alessandro Speciale in Rome at aspeciale@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, ;Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Craig Stirling

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