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.

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

The Cold War had an unintended side effect: It created a European wildlife paradise

Managing and resolving conflicts in a politically inclined group of team members

Can privatisation be the panacea for the lack of growth in Europe?

European Fund for Transition to support more workers made redundant

Trump questions US – Europe kinship, approaches Russia

Addressing the consequences of digitalisation in the Russia & CIS region

Eurozone: Retail sales and inflation point to recession

How fungi could save the world

EU Court of Justice invalidates Safe Harbour and the game for thousands US businesses suddenly changes

CEOs in these countries are more likely to go with their gut

The EU sides with China against the US; but has Germany capitulated to America?

WhatsApp to face scrutiny from EU regulators task force over data sharing with Facebook

Food safety: more transparency, better risk prevention

Commission presents far-reaching anti-tax evasion measures

If Macron defies Britain about the banks, Paris and London to clash over ‘La Manche’

We should look to nature for solutions to the global water crisis. Here’s why

Italy can stand the US rating agencies’ meaningless degrading

Ukraine: turning challenges into opportunities


Council Presidency: Floundering with the EU 2014 budget

What little Cameron got in Brussels seems enough to keep Britain in the EU

Will GDPR block Blockchain?

Greenpeace’s saints and sinners in the tech world

What will Germany look like after the next election?

Chinese Premier Li Keqiang’s speech from World Economic Forum’s Annual Meeting of New Champions

Poverty and social exclusion skyrocket with austerity

EU integration: MEPs want to end permanent opt-outs from EU law

1 million citizens try to create a new EU institution

Industry 4.0: Championing Europe’s fourth industrial revolution

Youth policy in Europe not delivering for young people

The impossible end of the war in Syria

More than 750 million people around the world would migrate if they could

Clamp down on illegal trade in pets, urge Public Health Committee MEPs

Congrats to the #FutureofMalta: a new age of voting

Eurozone: Negative statistics bring deflation and recession closer

A new crop of EU ‘Boards’ override the democratic accountability and undermine the EU project

EU Council: Private web data to be protected by…abusers

UN rights office appeals for peaceful Zimbabwe elections amid reports of intimidation

Germany and OSCE support an east-west dialogue in Ukraine without exclusions

The right approach to addressing overcapacity problem from a Chinese perspective

Greece bailout ends but with no substantial effect on citizens’ life

Yesterday’s “jokes” and sarcasm by Digital Single Market’s Vice President Ansip on EU member states’ right to protect their telco markets

Why today’s leaders need to know about the power of narratives

GSMA head urges regulators to help Europe regain leadership

Rohingya refugee shelters ‘washed away’ in Bangladesh monsoon rains: UN agency

Libya: UN Mission condemns deadly attack against police in country’s south-east

How will the NATO-EU competition evolve in the post Brexit era?

Lagarde’s metamorphoses, not a laughing matter

EU Council: The US airlines may freely pollute the European air

Volkswagen getting away with it in Europe

Mixed news about the Eurozone economy

Companies can help solve water scarcity. Here’s how

Progress in medical research: leading or lagging behind?

FROM THE FIELD: Sailing a traditional and sustainable path in Fiji’s tropical waters

Continue reforms to make growth work for all in Spain

To be fair or to be sustainable? That is the (retirement) question

It’s ‘time for concrete action’ says UN chief, welcoming inter-Korean agreement

Human trafficking, slavery reports and health of migrants in Libya

Businesses can lead a revolution in disability inclusion

Improved access to financial information to curb serious crime

The Eurogroup protects Germany and blames others

More Stings?

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