War of words in Davos over Eurozone’s inflation/deflation

The logo of the World Economic Forum (WEF) in Davos, on a pane. (EC Audiovisual Services, 22/01/2014).

The logo of the World Economic Forum (WEF) in Davos, on a pane. (EC Audiovisual Services, 22/01/2014).

During the last two days, Friday and Saturday, of this year’s Davos gathering of the rich and powerful, an intense debate about Eurozone’s inflation or rather deflation, divided once again the Old Continent between Germans and…anti-Germans. Ollie Rehn, the Finn European Commission Vice-President and Commissioner responsible for finance and the euro, said that the currently very low inflation rate in euro area at 0.8%, poses severe problems to growth.

He clarified that Eurozone needs a bit more inflation, closely to 2% in order to facilitate the resumption of economic activities. This was enough for the German Federal minister of finance to start a war. Wolfgang Schäuble, while in Davos, replied that this is nonsense and added that if this is Rehn’s opinion as Commission member appointed by Finland, the German government totally opposes this absurd allegation, as it termed it. Obviously Schäuble is very happy with such a low inflation rate, a position held only by Germany though.

Rehn is not alone

Unfortunately for Schäuble, Rehn is not alone in this. Last Saturday, the final day of the 2014 Davos Forum Christine Lagarde, the General Manager of International Monetary Fund, also pointed out that Eurozone’s inflation at 0.8% is way below the European Central Bank’s target set at 2%. She stressed that such a low inflation rate in Eurozone is threatening the global economy and termed it as a “new risk”. She also commented that this may lead to deflation and falling prices, a major threat to all economic values and growth. This is not the first time that the head of IMF strongly criticises Eurozone’s policies.

Not by chance Mario Draghi, the President of ECB, had also a lot to say about euro area inflation rate. Speaking at the same Davos conference as Lagarde, he said that Eurozone inflation is “subdued, and expected to remain subdued for about two years”. In this way Draghi took one more step nearer to the anti-German camp, coming closer to those who think that Eurozone needs a bit more inflation, despite the fact that his position as central banker requires impartiality. It seems that deflation is such a real threat for the euro area and the world, that Draghi couldn’t remain silent. He added “The longer it stays at a low level, the more serious risk of deflation”. He also considered that a persistently low inflation rate is a major impediment to growth.

An immoderate German

Coming back to the German minister of Finance, once again he is losing the sense of proportion and over-reacts, like last December, when he ‘ordered’ the European Parliament, to endorse a Berlin inspired plan for the European Banking Union. Now he openly accused Rehn for brinkmanship, when he said that Rehn acts not as a Commissioner, but as candidate in the next European election. He even went as far as to say, that “Rehn says nonsense while fighting an electoral campaign”.

It must be noted at this point that Rehn eyes a candidature for the Presidency of the European Parliament, as a head of the ALDE party, the alliance of liberals and democrats for Europe. ALDE is to choose its candidate for the Parliament’s presidency next month. Schäuble’s political party, the German Christian Democratic Union (CDU), belongs to the currently largest EU Parliament group the European People’s Party‎ (EPP).

Risk of falling prices

The controversy about Eurozone’s austere economic policies, which lead to low inflation or probably negative inflation (deflation) and falling prices, is not new. For quite some time the major economic powers outside Europe accuse Germany as the responsible party for this policy, which doesn’t help any other country to grow, than Germany.

Last Wednesday the European Sting writer Maria Milouv reported: “In the latest issue of its World Economic Outlook (WEO), which was published yesterday, the IMF raises the tone of criticism against Europe. It’s again the risk of deflation and the projection that “economic slack will remain high”, the two axes which constitute the cutting edge of criticism of North America against Eurozone. The latest WEO also notes that the contribution of exports to euro area’s weak growth will increase, while internal “demand will be held back”. This assessment will give substance for more grievances from the US against Germany. Washington accuses Berlin and other surplus euro area countries, that through their increased exports they ‘steal’ the growth potential from their Eurozone peers and the rest of the world”.

This assessment is shared by almost everybody else outside Germany, including the EU Commission, IMF, the US and French governments and a large number of medium and small Eurozone countries. The reality is though that Germany is the principal financial power supporting the Eurozone countries in distress and this fact gives Berlin the right to dictate policies. This is the way it is.

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

A Sting Exclusive: “China is Making Good Stories not Bad Ones”, Ambassador Yang highlights from Brussels

The latest emoji are more inclusive – but who approves them?

“China is the only BRICS country to have either met or possibly slightly surpassed my expectations”, BRICS inventor Jim O’ Neil from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

Schengen: new rules for temporary checks at national borders

Coronavirus: Commission launches data sharing platform for researchers

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

Solutions for cultural understanding: medical students’ perspective

EU-Western Balkans summit in Sofia

Afghanistan: EU reinforces humanitarian support with €40 million as crisis worsens

EU migrant crisis: Germany, France and UK to show the way. Will the rest of the EU follow?

Humanitarian aid: EU mobilises over €18 million for the Central African Republic in 2019

The European Sting @ European Business Summit 2014 – the preview

The European Parliament wants to stay in one place

Has the treacherous theory about the ‘French patient’ finally prevailed?

The world to teach Germans to…un-German

Thursday’s Daily Brief: ambulance attack in Libya, #GlobalGoals defenders, human rights in Cambodia, Swine Fever

Drinking water: new plans to improve tap water quality and cut plastic litter

Antitrust: Commission consults stakeholders on guidance for national courts when handling disclosure information

MEPs urge the EU to lead the way to net-zero emissions by 2050

Brexit must not put UK university research at risk

Digital Finance: Commission holds closing pan-European conference following extensive outreach events

First-ever World Braille Day underscores importance of written language for human rights

Greece @ MWC14: Greek-born mobile champions at MWC 2014

Threats from mammoth banks and Brussels fuel May’s poll rates

How fungi could save the world

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

Gender equality: Breaking the glass ceiling

Higher education becoming again a privilege of the wealthy?

Here are three ways blockchain can change refugees’ lives

More than 3,400 classrooms damaged or destroyed by Cyclone Idai in Mozambique, says UN Children’s Fund

Three ways Finland leads the world – and education isn’t one of them

European Semester 2019 Spring Package: Commission issues recommendations for Member States to advance sustainable and inclusive economic growth

Coding in Namibia: UN supports young women’s computing career dreams

Protection of workers from biological agents: how to classify COVID-19

Back to the Basics: Primary Healthcare

New EU telecom rules: latest actions in time for transposition deadline

Where is Egypt leading the Middle East and the Mediterranean economy?

Taj Mahal closes as European Union considers non-essential travel ban – Today’s COVID-19 updates

The world’s economy is only 9% circular. We must be bolder about saving resources

Closure of borders: Civil Liberties Chair demands proportionality and coordination within the EU

Cultivating mental well-being while tackling food insecurity

5 ways cities can use emerging technologies to fight climate change

35th ACP-EU Assembly: migration and demographics will dominate the debate

Welcome to the COVID-19 era of world sport

Yanukovych attempts a violent and deadly cleansing of Kiev’s center

COP21 Breaking News_03 December: Argentina Accepts KP Amendment

European Democracy Action Plan: making EU democracies stronger

UN chief welcomes G20 commitment to fight climate change

Afghanistan: Bring ‘architects’ of latest ‘appalling’ suicide bombing to justice, says deputy UN mission chief

More women and girls needed in the sciences to solve world’s biggest challenges

Reducing deforestation means getting serious about environmental crime

Brexit: With May gone the Tory divide is to sink the UK despite Brits wanting to ‘Remain’

Around 600,000 Afghan children face death through malnutrition without emergency funds: UNICEF

Brexit: the Commission proposes the creation of a Brexit Adjustment Reserve

Tigray conflict: EU humanitarian support to Ethiopian refugees reaching Sudan

‘Air bridge’ vaccination operation begins for Ebola-hit communities in DR Congo

UN forum spotlights cities, where struggle for sustainability ‘will be won or lost’

Without tackling ‘gross inequalities’ major issues will go unsolved, warns UN rights chief Bachelet

A Sting Exclusive: EU Commission’s Vice President Šefčovič accentuates the importance of innovation to EU’s Energy Union

More than four in 10 women, live in fear of refusing partner’s sexual demands, new UN global study finds

More Stings?

Advertising

Speak your Mind Here

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

WordPress.com Logo

You are commenting using your WordPress.com 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