Eurozone closer to a deflation – stagnation trap

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro, gave a press conference on economic forecasts for Eurozone. (EC Audiovisual Services).

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro, gave a press conference on economic forecasts for Eurozone. (EC Audiovisual Services).

In a six line and few words Press release, Eurostat, the EU statistical service, announced its flash estimate for March Eurozone inflation at 0.5% further down from 0.7% in February, setting wide open the deflation (negative inflation rates) trap for the 18 countries euro area. This fast disinflation (falling inflation rates) course started last October, when inflation took a clear downwards turn to 0.7%.

Deflation is a major threat to all developed economies leading to exponential reductions of all nominal prices and chronic stagnation of real economy. The Japanese economy has suffered from deflation for ten years and still is not certain if it has exited from this trap, despite the hundreds of trillions of yen of extra government spending and borrowing.

International economic analysts and institutions like the International Monetary Fund have warned about the disinflation or even deflation dangers that threaten Eurozone. Still, the German government and the country’s central bank, the Bundesbank, pretend that nothing is happening and actually demand a rise of interest rates.

Away from targets

ECB’s President Mario Draghi has repeatedly stated that inflation is bound to remain at very low levels for a long time, far away from central bank’s target, set at below but close to 2%. This persistent tendency of disinflation in the Eurozone has attracted heavy criticism on the grounds that Eurozone doesn’t do enough to support internal demand and thus lead its own economy out of recession and the world to a higher level of growth. The IMF and the US have been warning Europe about that for a long time.

In any case, the new Eurostat announcement makes things crystal clear. Eurostat says “Euro area annual inflation is expected to be 0.5% in March 2014, down from 0.7% in February, according to a flash estimate. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in March (1.1%, compared with 1.3% in February), followed by food, alcohol & tobacco (1.0%, compared with 1.5% in February), non-energy industrial goods (0.3%, compared with 0.4% in February) and energy (-2.1%, compared with -2.3% in February)”.

Given that energy prices are considered as an exogenous variable, all the other sectorial inflation indices keep falling from month to month. Incidentally, the inflation index of the key sector ‘non-energy industrial goods’ is dangerously close to zero. This sector is considered as the heart of every developed economy. In the case of Eurozone, the pricing of the sector’s product signals a persistent stagnation of demand.

The ECB to decide

Despite the fact all those negative data are confirming that Eurozone is very close to a deflation trap and may soon return to its four year long recession period, Germany insists that there is no need for monetary measures to help the economy exit from this dreadful region. Berlin repels measures like negative interest rates on commercial banks’ deposit accounts with the ECB or a further reduction of central bank’s basic interest rate from presently at 0.25% to, why not 0%. Obviously, Germany prefers to gain some billions in interests on its huge reserves, while totally ignoring the needs of all the other Eurozone member states. Everybody else except Germany need low interest rate financing in order to exit the state of stagnation or even recession many countries are in.

The ball is now in Draghi’s court. Next Thursday the Governing Council of the ECB is due to meet and decide on the basics of Eurozone’s monetary policy. The Council cannot remain indifferent in view of the imminent deflation and recession dangers that Eurozone is threatened by. The ECB has to listen to the needs of the vast majority of Eurozone citizens. It cannot cater exclusively for the Teutons.

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 underestimate the power of data at our peril. This is why

How oysters are cleaning New York’s polluted harbor

Security Council condemns ‘heinous and cowardly’ attack in Iran

Why leaders need to upgrade their operating systems

UN health agency identifies 5-year-old Congolese boy as first confirmed case of Ebola in Uganda

5 ways to bridge the global health worker shortage

Energy: EU priority projects should be aligned with 2050 climate objectives

UN-led Yemen ceasefire monitoring team gets ready to begin operations

David Attenborough: The planet can’t cope with overpopulation

Winter 2020 Economic Forecast: Offsetting forces confirm subdued growth

Zero carbon buildings are possible following these four steps

From Sweden to India, School climate strikes have gone global

EU budget: Will Germany alone manage Britain’s gap?

COP21 Breaking News_12 December: 195 countries adopt the First Universal Climate Agreement

UN emissions report: World on course for more than 3 degree spike, even if climate commitments are met

Why income inequality is bad for the climate

This is how AI in video games will change the future of work

Zuckerberg, a paella, and the mighty EU questionnaires that would stop Whatsapp acquisition by Facebook?

In Rwanda, high-speed drones are delivering blood to remote communities

Turn toxic e-waste into a source of ‘decent work’, UN labour agency urges

Malaysia’s last Sumatran rhino died – here are more species on the verge of extinction

So different, so close – for two twinning cities

Everybody against Germany over the expensive euro

Planet’s Health is Our Health and the Reverse is True

How two colossal Assyrian icons were recreated using digital tech

Parliament boosts efforts to improve its environmental performance

The fires in the Brazilian amazon rainforest may be related to the increase in the number of hospitalizations for respiratory complications in the state of PARÁ

Resettlement needs set to rise to 1.4 million people in 2019, UN refugee agency reports

The online junk information grows, but so we shall

Greferendum: the biggest political gaffe in western modern history to tear Europe apart? #Grexit #Graccident

Inflation down to 0.7%, unemployment up at 12.2%: Bad omens for Eurozone

Palestinian Bedouin community faces demolition after Israeli court ruling, warns UN rights office

Deutsche Bank chased away from US, threatened with more fines

‘Immense’ needs of migrants making perilous journey between Yemen and Horn of Africa prompts $45 million UN migration agency appeal

Anti-vaccine sentiment one of 10 biggest health threats, says WHO

The EU will always have a stable partner in Montenegro, says President Đukanović

The cost of housing is tearing our society apart

How to accelerate digital literacy in the enterprise world

Public Policies for LGBT in Brazil

A small group of world leaders are standing together against inequality

How does your immune system work?

Mediterranean and Black Seas: Commission proposes fishing opportunities for 2020

Coronavirus: Commission welcomes Parliament’s quick green light for proposed new resources to protect lives and livelihoods

‘Embrace the transformation’ to a carbon-neutral world by 2050, UN chief tells COP25

5 reasons to be more cheerful about the future of the oceans

EU members commit to build an integrated gas market and finally cut dependency on Russia

This is the environmental catastrophe you’ve probably never heard of

New Syria fighting represents ‘giant powder keg’, warns aid veteran, as he leaves UN stage

Britain in and out of the EU

Ebola: EU releases additional €3.5 million to tackle epidemic

Why education and accountability are important for developing countries?

Resiliency is the key to strong investments in a chaotic world

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

UN agency plan tackles ‘hidden cost’ of gold, paves way for safer, mercury-free mining

Why flexible workspaces are the key to winning the talent war

How a trade war would impact global growth

Who is culpable in the EU for Ukraine’s defection to Russia?

It’s time to get serious about the causes of pandemics: UN report

Cyclone Idai: UNICEF warns of ‘race against time’ to protect children, prevent spread of disease in flood-ravaged Mozambique

Commission pledges €100 million to help Mozambique recover from cyclones Idai and Kenneth

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