The ECB is expected to tighten its monetary policy stance in reaction to the soaring inflation. However, this will by itself do nothing to address the root cause of the inflation: the soaring prices of fossil fuels. In this open letter academics and financial economists and analysts sketch a route that allows the ECB to tighten its monetary policy stance while at the same time speed up the energy transition and thus reduce the vulnerability of the eurozone for shocks to the price stability coming from volatile fossil fuel prices.
This can be done by keeping the dual interest rate structure that has been created over the last years through the so called targeted longer term refinancing operations (TLTRO’s) for banks. These can be linked to lending for clean energy production and energy efficiency renovations. Cheaper capital costs for these investments would stimulate the supply of green domestic energy, while also directly supporting households navigate throughout the cost of living crisis, by reducing energy consumption and bills.