Furthermore, contrary to what is often claimed, the dispersion in economic activity and inflation across eurozone countries has recently not increased significantly compared with the average during the period before the financial crisis. In a monetary union – not unlike within nation states – some degree of heterogeneity is normal. The differences in economic activity and inflation in the eurozone are very much like those, for example, across the US.
The benefit of maintaining price stability in the eurozone as a whole, and thereby keeping the inflation risk low, becomes even greater in times of crisis. At the height of the financial crisis, the ECB lowered interest rates aggressively in the face of downside risks to price stability. To the extent that these risks tilt to the upside, the ECB needs to reverse its stance. If it failed to respond symmetrically to the evolving circumstances, investors would soon demand a higher premium to compensate for the increased inflation risk. This would hurt first and foremost those economies that are burdened by high debt servicing costs. It is not eurozone policy interest rates – which in fact are exceptionally low – that keep borrowing costs elevated in certain eurozone countries.