Eurozone and Britain heading in different directions

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, gave a Press conference on the Union’s economic forecasts for 2012-2013. (EC Audiovisual Services).

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, gave a Press conference on the Union’s economic forecasts for 2012-2013. (EC Audiovisual Services).

Eurostat, the EU statistical service, confirmed yesterday that its ‘flash estimate’ of September inflation at 1.1% is correct. In a brief Press release, the Service announced that, “Euro area annual inflation was 1.1% in September 2013, down from 1.3% in August. A year earlier the rate was 2.6%. Monthly inflation was 0.5% in September 2013”. Eurozone’s inflation has being falling fast. Within three months it fell from 1.6% in July to 1.1% in September.

According to the same source in September 2013, the lowest annual rates were observed in Bulgaria (-1.3%), Greece (-1.0%) and Latvia (-0.4%), and the highest in the United Kingdom (2.7%), Estonia (2.6%) and the Netherlands (2.4%). Compared with August 2013, annual inflation fell in seventeen Member States, remained stable in eight and rose in three. The negative readings for Greece and Bulgaria were expected due to the deep recession both countries are in, but the 2.7% inflation rate for Britain appears on the high side.

Britain in danger of more inflation

Actually, Britain is in completely different economic conjuncture than the rest of the European Union. The Bank of England has embarked in a super relaxed monetary operation designed to keep interest rates low. Its ultimate targets are not monetary though, and are aimed at more growth and less unemployment, without paying much attention to the inflationary repercussions this policy may have. Many analysts fear that this may soon lead to capital outflows from the sterling in anticipation of an inflation spiral.
The new governor of the Bank of England, Mark Carney, has repeatedly confirmed that the central bank of Britain is not to raise its basic interest rate from the currently very low-level of 0.5%, “until the Labour Force Survey headline measure of the unemployment rate has fallen to 7%”. In this way BoE has set an economic policy target, which doesn’t belong to its sphere of monetary mandate.

The question is whether the BoE will be able to maintain capital market interest rates at their current very low levels of 0.5% and at the same time avoid a capital outflow from the sterling. It may soon be confronted with renewed inflation pressures and a fast falling foreign value of the currency, feeding further price increases. In any case Britain enjoys a more robust growth that Eurozone and the BoE wants to strengthen it.

In continental Europe the conjuncture is almost the opposite. Fast falling inflation has not yet prompted the European Central Bank to cut further its interest rates. However, ECB’s President Mario Draghi, has left this possibility open for the next meeting of the bank’s Governing Council at the beginning of November. The obvious target is to support growth.

Eurozone risks more recession

Eurozone’s problem is now its very low, fragile and uneven growth recorded during the past few months in the 17 member states. After three consecutive years of recession, the 0.3% increase of GDP during the second quarter of 2013 may easily return to the south part of the graph, threatening in this way to send euro area in a disinflation and a zero or negative growth vicious cycle.

In this respect Eurostat’s confirmation of September’s inflation at 1.1% is not a good sign. ECB says that its inflation target is at below 2% but not much way from this benchmark. By any measure, the 1.1% is far below the target. Concerning monetary policy, ECB applies almost the same super relaxed policy tools as the BoE, in a completely different economic conjuncture though. As a result, while Britain runs the risk of an inflation spiral, Eurozone may end up in a disinflation and negative growth vicious cycle.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

3 ways to fix the way we fund humanitarian relief

Countries must make teaching profession more financially and intellectually attractive

6 ways social innovators are responding to the COVID-19 pandemic

EU27 leaders unite on Brexit Guidelines ahead of “tough negotiations” with Theresa May

COVID-19 highlights how caregiving fuels gender inequality

Commission notifies the Republic of Panama over the need to step up action to fight against illegal fishing

Amid troop build-up in Rohingya’s home state, UN appeals to Myanmar for peaceful solution

Is it just visa-free travel that Erdogan demands from the EU to not break the migration deal?

The beginning of a revolution in healthcare

‘Multiplicity’ of rights violations in Ukraine as fifth winter of conflict bites

COVID-19: Commission presents guidelines for border measures to protect health and keep goods and essential services available

Parliament approves €34m in EU aid to Greece, Poland, Lithuania and Bulgaria

Palestinian students ‘compelled to drop dreams because of financial cuts’

How private investment can boost education access and quality in the digital economy

5 facts to know about Africa’s powerhouse – Nigeria

Parliament calls on member states to fully exploit the European Youth Guarantee

‘Power is not given, power is taken’, UN chief tells women activists, urging push-back against status quo

Mosul’s ‘3D contamination’ adds to challenges of deadly mine clearance work

Doing the right thing at the worst time: this is why protecting human rights protects businesses

COVID-19 has accelerated India’s digital reset

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

Commission publishes EU Code of Conduct on countering illegal hate speech online continues to deliver results

Services are the hidden side of the US-China trade war

4 myths about manufacturing in the Fourth Industrial Revolution

Why protectionism spells trouble for global economic growth

Brands can be a force for good and for growth. Here’s how

Mali not fulfilling its ‘sovereign role’ in protecting its people: UN human rights expert

World Migratory Bird Day highlights deadly risks of plastic pollution

‘Are we ready for the age of disruption?’, Thailand’s Foreign Minister asks UN Assembly

This is the biggest risk we face with AI, by Google CEO Sundar Pichai

European Youth Forum welcomes the European Commission’s proposed revision of the Union Code on Visas, however it does not go far enough

State aid: Commission approves €12 million Danish scheme to compensate damages caused by cancellations of large public events due to COVID-19 outbreak

Women in Iceland have walked out of work to dispute the gender pay gap

Student Tutor Ratio: at a glance

ITU Telecom World 2017 on 25-28 September in Busan, Republic of Korea

A Sting Exclusive: the EU referendum is about fighting for an outward-looking Britain

Scientists now think air pollution is fuelling violent crime

Siemens-Alstom merger: Can Germany and France lobby to circumvent EC’s rejection, against EU consumers’ interests?

Bangladesh: Head of UN refugee agency calls on Asia-Pacific leaders to show ‘solidarity’ with Rohingya refugees

European creativity and digital economy are drowning in a copyright swamp

‘Continue working together’ UN chief urges DR Congo, as country heads to polls

MWC 2016 LIVE: CEOs issue rallying call to drive ‘gigabit economy’

What the car industry has done to help fight climate change – and what it needs to do next

Speeches of Vice Premier LIU He and Vice President of the European Commission Jyrki Katainen at the Press Conference of the Seventh China-EU High-level Economic and Trade Dialogue

Does it pay for cities to be green?

Despite lagging in the Global Goals, Africa can meet the 2030 deadline: Rwandan President

A Sting Exclusive: “Paris and beyond: EU action and what COP21 should deliver”, Green MEP Keith Taylor discusses from Brussels 

What happens when you toss your water bottle in the trash?

Keep Africa’s guns ‘from firing in the first place’, UN political chief urges

Costa Rica is one of the world’s happiest countries. Here’s what it does differently

Coronavirus COVID-19 wipes $50 billion off global exports in February alone, as IMF pledges support for vulnerable nations

Frans Timmermans on the European Green Deal as a growth strategy at the Bruegel Annual Meetings

This is what great leadership looks like in the digital age

Resolving Israel-Palestinian conflict, ‘key to sustainable peace’ in the Middle East: Guterres

Security Council marks transition from 15 years of UN peacekeeping in Haiti

EU-UK Statement following the High Level Meeting on 15 June

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

Trump reshapes the Middle East at the expenses of Europe

Tuesday’s Daily Brief: Hunger crisis in DR Congo, Swine Fever in Asia, Venezuela death investigation call, updates on Eritrea and Syria

The European Union continues to lead the global fight against climate change

More Stings?


Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s