Economic theory tells us that even when mainly concerned with price stability, a central bank should target economic activity. This because on one side the effects of monetary policy on prices pass through economic activity, and on the other economic activity is a good indicator of expected (and future) inflation. Hence, I believe that there is room for a more proactive policy on the part of the ECB. This would also help to cancel the feeling of inertia that the public has about past monetary policy. A more flexible interpretation of the Stability Pact would increase the room for manoeuvre of fiscal policy to counteract country specific shocks and asymmetric effects of the unique monetary policy of the EMU. As such, it would help balance the European policy mix, that today places too much emphasis, and consequently too much burden on the ECB. If part of the job of stabilizing the economy is done by fiscal policy, the pressure on the ECB will decrease. On the contrary, in the present situation when a strict application of the SGP call for a procyclical fiscal policy, monetary policy has to act both to reshuffle the economy and to compensate for the restrictive fiscal policy, which may be impossible at a too low rate of inflation. Finally, it is hard to tell, in present circumstances, how monetary policy will be affected by the problem of ageing society in Europe. It may be that inflationary pressures will be dominant, calling for a more restrictive role by the ECB; but it may as well be that, if mass unemployment persists, ageing of the society will have deflationary effects. We have to conclude that monetary policy today should aim, even more convincingly, to full employment.
