Last week, several ECB members were responsible for pushing back expectations regarding the speed at which borrowing costs would decrease.

The message got through, and a decision in March is now considered unlikely. However, there is still a need for a clear direction.

Christine Lagarde seemed to announce June as the month of the first rate cut. Yet, reading the minutes of the last December meeting, the message is different. Concerns from some policymakers that growth estimates are too optimistic contrast with Madame Lagarde’s current position. If the eurozone economy, already on the brink of recession, were to weaken further, the ECB’s competence would be criticized. Making the wrong policy move twice a row, being too slow to respond to runaway inflation, and then keeping borrowing costs too high for too long are not good ideas.

The ECB only ended eight years of negative rates in the summer of 2022, tightening its policy several months after the Bank of England and the Federal Reserve. This time, it needs to be more proactive, as the European economy, which is more open to the rest of the world than China and the United States, is losing momentum. The German manufacturing industry has been in recession for over a year, and France is following a similar trajectory.

It’s no coincidence that French President Emmanuel Macron called for the issuance of European Union bonds to help finance defence and technology infrastructure. The United States is already claiming a large share of strategic reshoring, as outlined in President Joe Biden’s 2022 initiative. The inflation reduction law encourages multinational companies to build new factories in the United States. Germany attracted Swedish electric vehicle battery maker Northvolt with €902 million in funding earlier this month. This costly victory seems solitary compared to the flood of new manufacturing capacity emerging on the other side of the Atlantic.

Preventive action is needed as economic difficulties intensify. The decline in bank lending and monetary mass measures are unlikely to help. The following quarterly bank lending survey is scheduled for this week, ahead of the ECB meeting on Thursday; it is unlikely to be a pleasant reading.

The ECB has lost its way in its divisions between a timid North and an always spendthrift South. Implementing a timetable or triggers allowing investors to understand the path of the monetary policy has become essential. The speed with which the Fed will pull the interest rate reduction trigger could significantly restrict the ECB’s flexibility; having some plan would give the Governing Council a respite and, above all, credibility.

Markets, as often happens, have taken the lead. The Bloomberg consensus among economists is for an average of four rate cuts, bringing the ECB’s official rate to 3% from the current 4%. Money markets anticipate up to 150 basis points of easing for this year.