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

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

We need to give voice to ‘We the Peoples’, says UN chief

10 ways cities are tackling the global affordable housing crisis

Climate change: cutting the good by the root?

Deliver ‘significant results now’, UN General Assembly President tells COP25 climate conference

Italy’s revised budget remains roughly unchanged waiting for Europe’s fury

Malta and Slovakia: MEPs warn of lack of judicial independence and corruption

Tackling youth unemployment through the eyes of a European entrepreneur

Knowledge management and entrepreneurship: short term vs. long term perspective

How can we build a workforce for our digital future?

COVID-19 tracing apps: MEPs stress the need to preserve citizens’ privacy

How can consumers be effectively protected from insurance sellers?

Parliament boosts consumer rights online and offline

Cambodia: Giving back to UN peacekeeping

Assembly of European Regions @ European Business Summit 2014: The European regions on the path to recovery

Europe provides financial support to African countries while Turkey denies to change terrorism laws jeopardising the EU deal

Three steps we must take to secure the future of our forests

Thursday’s Daily Brief: Safeguarding civilians, strengthening Ebola response in DR Congo, marking Fistula Day, updates on CAR and Syria

How can batteries become more sustainable? This young scientist might have the answer

Why “de-learning” is equally important as reskilling in conversations about the future of work

With the right leadership, sustainable finance can help us shift to a low-carbon economy

The EU-US trade agreement, victim of right-wing extremists and security lunatics

Restore land to save the planet, boost the economy, says head of UN body combating desertification

These are the next big products in consumer technology

‘Global clarion call’ for youth to shape efforts to forge peace in the most dangerous combat zones

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

The Council unblocks all EU budgets

Air pollution: How to end the deaths of 7 million people per year?

3 ways to accelerate the energy transition

COVID-19’s isolated world is the norm for people for disabilities

Mental health: what can be done to diminish increasing suicide rates?

Decent working conditions for the young health workforce: what are the challenges and can we find solutions?

More accessible products and services for disabled and elderly people

We must stop turning a blind eye to the world’s health crises

Germany may have a stable and more cooperative government

At last Britain considers a super-soft Brexit

Opening – EP remembers Nelson Mandela and mourns attacks on Roma in Ukraine

Venezuela: UN human rights office calls for ‘maximum restraint’ by authorities in face of new demonstrations

How a more integrated approach could help to end energy poverty

Libyan national conference postponed, nearly 500,000 children at ‘direct risk’ from fighting around Tripoli

Emergency meeting called as Ebola spreads to Congolese city – UN health agency

EU to spend €6 billion on youth employment and training futile schemes

In Bali, UN chief Guterres outlines importance of international financial cooperation for sustainable development

What universities can learn about citizenship in the COVID-19 pandemic

The mental health of our society

EU Summit/Migration: Parliament calls for joint solutions based on solidarity

‘New tech’ business model threatens decent work conditions, warns UN

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

FROM THE FIELD: Stopping aquatic hitchhikers to safeguard environments at sea

Yemen talks: Truce agreed over key port city of Hudaydah

An expert in the South China Sea issue on an exclusive interview at the European Sting

The cuts on 2014 Budget will divide deeply the EU

ECB embarks on the risky trip to Eurozone banking universe

This is the IMF’s latest take on the economy in 2020

UN member states express their will to tackle global migration but specific actions are still missing

How can education empower youth to become tomorrow’s leaders

A Wholesome Health Care for Transgenders: Sex Reassignment Surgery

‘Stronger’ effort must be made to cement peace deal for South Sudanese women and girls: UN Women chief

2014 will bring more European Union for the big guys and less for the weak

Is Europe misjudging its abilities to endure more austerity and unemployment?

Siege of Syria’s eastern Ghouta ‘barbaric and medieval’, says UN Commission of Inquiry

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