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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

UN recorded 64 new allegations of sexual exploitation or abuse in the past three months

WEF Davos 2016 LIVE: “Employment contracts today are a reducing share of the workforce”, scientists worry in Davos that the 4th industrial revolution threatens employment globally

It’s a lie Eurozone isn’t competitive

EP Group leaders on Brexit: “the agreement is not open to renegotiation”

Why education and accountability are important for developing countries?

EU tourism industry expects a new record year in 2014

5 technologies that will forever change global trade

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

Education critical to ensure future of forests, and reverse their destruction

End ‘cycle of violence’ in Gaza, UN deputy chief tells forum on Palestine

How close is the new financial Armageddon? IMF gives some hints

MWC 2016 LIVE: Freemium MVNO model a success, claims FreedomPop head

UN welcomes ‘milestone’ release of 833 Nigerian children from anti-Boko Haram force

Brexit update: Tusk’s proposal is out and Cameron takes it all

Countries should focus on labour market policies to help refugees and improve coordinated actions to tackle illegal immigration

Bigotry ‘moving at lightning speed’ Guterres warns, as UN marks the Holocaust

Obama, Crimea and the TTIP pill

The European Sting writes down the history LIVE from G20 Leaders’ Summit in Turkey

China will be the world’s top tourist destination by 2030

A Sting Exclusive: “On the road to Japan-EU Economic Partnership Agreement”, by Ambassador Katakami of the Japanese Mission to the European Union

Saudi Arabia expresses ‘regret and pain’ over Khashoggi killing, during UN rights review

Madagascar: UN chief commends leaders, State institutions following ‘historic milestone’ election

Europe to turn the Hamburg G20 Summit into a battlefield

MEPs back plans to boost joint assessment of medicines

The European Brain Drain: hard facts and harder truths

MEPs take stock of the EU’s foreign, security and defence policy priorities

South Sudan: ‘Horrific acts’ by government may constitute ‘war crimes’ says UN, demanding justice

JADE Testimonial #1: Marcello @ Enlargement

Europe’s top court hears Intel and sends € 1.06 bn antitrust fine to review

EU-US Privacy Shield data exchange deal: US must comply by 1 September, say MEPs

Here’s how we can rethink the way we eat meat

UN agency chiefs condemn Saudi-coalition led air strike that killed dozens in western Yemen

China’s New Normal and Its Relevance to the EU

Conflicting statistics and bad banks haunt the Eurozone

A neo-liberal toll free Paradise for the super rich and tax hell for wage earners

Manufacturers Get Smarter for Industry 4.0

ILO: Unemployment to increase by 8.1 million in 2013-2014

Merkel’s triumph will make Berlin more unbending

Bangladesh elections: Hold those responsible accountable for ‘violent attacks and intimidation’

Greece did it again

Regional competitiveness and growth: a Gordian knot for Europe

Commission sets moderate greenhouse gas reduction targets for 2030

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

5 ways to fast-track the transition to a carbon neutral world

This is the state of the world’s health, in numbers

Is the EU’s enlargement over-stretched?

The sad plight of fledging doctors

FROM THE FIELD: Heeding the call for women’s rights around the planet

Why this is the year we must take action on mental health

Universal access to energy is a major challenge for the Arab world. Here’s why

Europe and UN form bulwark against ‘might makes right’ worldview, EU foreign affairs chief tells Security Council

More bank bailouts at taxpayers’ expenses

Here are three ways organizations can prepare for tomorrow’s world

COP21 Breaking News_05 December: Children Will Bear the Brunt of Climate Change: UNICEF

COP21 Breaking News_03 December: Europe’s children urge leaders to commit to climate action at UN Climate Summit in Paris

Trump aims trade offensive solely to China, renews truce with EU

3 vital steps to a new gender equality playbook

Adolescent health has been overlooked for too long

Far from a healthy Health Workforce: lack of workforce planning leaves our citizens without access to proper care

Darfur peace process at a ‘standstill’ as demonstrations against Sudanese Government continue

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