An assessment of the conduct of monetary policy in Europe must necessarily be made along two distinct and complementary lines. The first is a comparison with the policies followed in the past. The second line has to assess whether monetary policy is adapted to the new conditions that came into existence with the inception of the Euro. The picture with respect to these two criteria is mixed. Monetary policy has certainly improved with respect to the policies followed in the 1990s, during the run up to the euro. In fact, the ECB proved to be much more growth friendly than its predecessors. On the other hand, though, the challenges posed by the new environment, the management of a large open economy, have not been internalized by the ECB, that was less reactive than the Fed, and too focussed on current inflation. The tightening of monetary conditions in the euro zone, mainly due to the euro appreciation, was not sufficiently cautioned by monetary policy. Especially considering the poor economic performances of the euro zone in the past few years, we must conclude that monetary policy was not helpful in fostering growth recovery in the euro area. The ECB did not fully recognise its new responsibility of conducting the monetary policy of a “big country”.
