Monetary policy

Price stability - objective of the Eurosystem

The primary objective of the Eurosystem is to maintain price stability. This is the key provision of the monetary policy chapter of the Treaty on the Functioning of the European Union. By focusing the monetary policy of the ECB on this objective, the Treaty incorporates modern economic thinking about the role, scope and limits of monetary policy and underlies the institutional and organisational set-up of central banking in Economic and Monetary Union.

The objective of maintaining price stability has been assigned by the Treaty for good reasons.

First, decades of practical experience and a large number of economic studies suggest that monetary policy will contribute most to improving economic prospects and raising the living standards of citizens by maintaining price stability in a lasting way.

Second, the theoretical foundations of monetary policy as well as experience drawn from the past demonstrate that monetary policy can ultimately only influence the price level in the economy. Thus, maintaining stable prices is the only feasible objective for the single monetary policy over the medium term. By contrast, apart from the positive impact of price stability, monetary policy has no scope for exerting any lasting influence on real variables.

The Eurosystem is required to act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources.