It is just not possible to normalise monetary policy in the euro zone

Some financial market participants are now imagining that the ECB is going to move to a markedly less expansionary monetary policy quite rapidly : rapid end of quantitative easing, then interest rate hikes. So i t is important to remember that monetary policy normalisation is impossible in the euro zone: It would lead to another debt crisis in some peripheral countries as their long-term interest rates rise sharply, which is already happening today; It would be highly ineffective at combating inflation, which, in the euro zone, is due mainly to rising prices of energy and other commodities, which are insensitive to rising interest rates in the euro zone, and not to wages; It would discourage investment (by companies, in the energy transition) at a time when it is already abnormally low. The only credible scenario is therefore one in which the ECB is highly cautious , especially as the war in Ukraine makes any monetary policy tightening in the euro zone impossible .