Is Eurozone heading for disinflation?

Opening of the "European Space Expo" in London by Antonio Tajani, Vice-President of the European Commission. There he pronounced a speech entitled "European Space Solutions". (EC Audiovisual

Opening of the “European Space Expo” in London by Antonio Tajani, Vice-President of the European Commission. There he pronounced a speech entitled “European Space Solutions”. (EC Audiovisual

It will be very interesting to hear what the governor of the European Central Bank, Mario Draghi, has to say tomorrow in his monthly Press conference, about the fast falling inflation rate and the even faster growing unemployment in Eurozone. Unless he sticks to the letter of ECB’s Statutes and insists, that unemployment does not fall within the mandate of the central bank while inflation remains in the acceptable region. During the last two days Eurostat, published two alarming statistics. Yesterday it was the unemployment rate which reached 12% in February on the average in Eurozone, but peaked at 27% in Greece and Spain. Today Eurostat issued its flash estimate for the March inflation in Eurozone at 1.7%, down from 1.8% in February. Inflation keeps falling steadily from a high of 2.7% in March 2012. No action What else Draghi expects in order to ring the alarms for a worsening recession? Unless he has no interest for the real economy and all his powers are consumed at keeping the banking sector alive, with trillions of euro in liquidity loans at almost zero interest cost. Every other major central bank in the world would have already announced measures to help the economy resume a growth path. Unfortunately the ECB is tightly bound to the practices and the tradition of the German central bank, the Bundesbank. This institution has as its sole target the protection of the currency from inflation dangers. But for months now there is exactly the opposite risk that is disinflation. In Greece for example annual inflation has already reached 0.1% while the country is losing every year around 7% of its GDP. What the ECB is going to do for Greece? Obviously nothing, because the misery of an entire country doesn’t fall within the mandate of Draghi. The same is true for Italy, Spain, Portugal even for France and other Eurozone countries. For all those member states which account for more than half of Eurozone’s economy, the ECB says it can’t do anything. Then what good is there for them in being in the euro area? In any case even Germany will be hurt ,if the current conjuncture continues unstopped towards more recession. Berlin, being the political powerhouse behind ECB’s inaction vis-à-vis the problems of the others, will feel at some point the recession and the fall of inflation towards the danger area of disinflation. Some Germans believe that their exports to the developing world can keep their country afloat. However the core business of Germany’s industrial exports are in Eurozone. Ulrich Grillo, the President of the Federation of German Industries, said yesterday that Germany cannot live alone, without Eurozone. If Berlin cannot understand what the most competent man has to say over Germany’s industrial future, then the political class that governs this country and sets the pace for Eurozone is becoming a dangerous bunch.     Services).

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