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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Monday’s Daily Brief: the cost of maternal healthcare, Sudan and Chad updates, sustainability in focus

Why Nordic nations are the best places to have children

On World Bee day, human activity blamed for falling pollinator numbers

ECB to play down IMF’s alarms for deflation danger in the EU

False promises to Small and Medium Enterprises

Increased levels of carbon dioxide could reduce brainpower, study finds

Facebook and Google to treat Europe as the 51st State of the USA

Sudan: Amidst deaths, injuries, imprisonments, UNICEF stresses children’s protection ‘at all times’

European Commission determined to conclude EU-Mercosur trade deal this year despite French concerns

Sustainability is now mission critical for businesses. Here’s why

FROM THE FIELD: Keeping Morocco’s indigenous culture and conservation in balance

Russia and the West to partition Ukraine?

Cyprus President urges collective leadership to address ‘root causes’ of world’s crises

Increasingly under attack, women human rights defenders need better back up

Phone lines open between Ethiopia and Eritrea, and people are calling strangers

Why we need a moderate approach to moderating online content

Final vote on European Solidarity Corps

‘Alarming levels’ of methamphetamine trafficking in Asia’s Mekong, UN warns

The Commission tells Berlin it is legally obliged to help Eurozone out of stagnation

Climate change: Will COP23 be able to accelerate the implementation of the Paris agreement?

Nearly three million more displaced year-on-year, warns refugee agency chief, but solutions are within reach

It’s a lie Eurozone isn’t competitive

Under-fives’ daily screen time should be kept to 60 minutes only, warns WHO

The West unites against Mali desert rebels

Creating shared value: an opportunity and challenge for entrepreneurship

Is there a new debt crisis on the horizon?

EU agricultural production no more a self-sufficiency anchor

UN rights chief calls for release of hundreds abducted and abused in South Sudan

A Sting Exclusive: the EU referendum is about fighting for an outward-looking Britain

Why economic growth depends on closing the interview gap

More hiring freedom can reduce teacher shortages in disadvantaged areas

Civilians ‘continue to pay highest price’ in Ukraine conflict, with peace prospects losing ‘momentum’

Tech companies are changing, for the better

Why carbon capture could be the game-changer the world needs

Who would pay and who is to gain from the EU-US free trade agreement

Bank resolutions to remain a politically influenced affair

Court of Auditors: EU budget money is there to be spent not to create value

Connected Claims returns to London in 2018

Wind farms now provide 14% of EU power – these countries are leading the way

5 futuristic ways to fight cyber attacks

MEPs demand Bulgaria’s and Romania’s swift accession to Schengen area

UN rights chief says ‘bar must be set very high’ for investigation of murdered Saudi journalist

Resolving banks with depositors’ money?

As tech disrupts our jobs, it’s not too late to turn pain into gain

Despite violence, ‘tremendous hunger’ for peace in Afghanistan: top UN official

Irish Presidency: Not a euro more for EU budgets

EU and Overseas Countries and Territories boost cooperation at annual Forum with €44 million

Technology can help us save the planet. But more than anything, we must learn to value nature

Juncker Investment Plan for Europe welcomed by European Youth Forum

International community agrees on a road map for resolving the tax challenges arising from digitalisation of the economy

Brussels waits for the Germans to arrive

Eurozone: Bank resolution proposal gains wider interest

Checks, fines, crisis reserve: MEPs vote on EU farm policy reform

Varna (Bulgaria) awarded European Youth Capital 2017

Why poorer people suffer more from climate change

Radioactive nuclear waste is a global threat. These scientists may have a new solution

Talent is worldwide. Opportunity is not. How can we redistribute it?

Fertilisers/cadmium: Parliament and Council negotiators reach provisional deal

New rules for audiovisual media services approved by Parliament

Juncker Plan reaches almost €410 billion in triggered investment across the EU

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