Eurozone set to abandon monetary and incomes austerity and adopt growth friendly policies

European Parliament. Committee on Economic and Monetary Affairs meeting. Monetary dialogue with Mario Draghi, President of the European Central Bank (seated). MEP Peter van Dalen (ECR, NL) greets the central banker to Parliament. (EP Audiovisual Service 16/12/2013).

European Parliament. Committee on Economic and Monetary Affairs meeting. Monetary dialogue with Mario Draghi, President of the European Central Bank (seated). MEP Peter van Dalen (ECR, NL) greets the central banker to Parliament. (EP Audiovisual Service 16/12/2013).

Finally, the European Central Bank’s Governing Council unanimously agreed yesterday to use extraordinary monetary measures to support growth in Eurozone and to counter a possible further fall of inflation rate towards the negative deflation region. To this effect, the ECB stopped just one step short from taking unconventional monetary measures, but the fact that its President Mario Draghi stated that the central bank is ready to do so, is tantamount to the real action. In short, ECB’s Governing Council in its regular monthly meeting yesterday unanimously acknowledged the precarious state of Eurozone’s economy.

Growth by printing money

This means that yesterday even the two German members of the Council endorsed the possibility that the ECB might need to support real growth with monetary measures, a possibility strongly denied by Berlin so far. The German government has been maintaining that growth cannot be based on monetary ‘quantitative easing’. The truth is though that all the major central banks of the developed world (the American Fed, Bank of England, Bank of Japan) have flooded their economies with plenty and cheap freshly printed money (quantitative easing), in order to support growth in the real economy. The ECB had so for denied to apply the same recipe.

This seems to be changing now. ECB’s Governing Council unanimously accepted that it may adopt quantitative easing, if low inflation and real economy stagnation persist. On top of that, Draghi confirmed that the key ECB interest rate (now at 0.25%) will remain at its present or lower levels for an extended period of time. This is the well known new ECB strategy to keep the markets informed in advance, about its future policy intentions (forward guidance).

Hard realities

The confirmation that the ECB may further reduce its interest rates and also that it may adopt further quantitative easing are indirect acknowledgments that inflation is expected to remain subdued, well into the foreseeable future. Draghi said that “Over the following months, annual Harmonised Index of Consumer Prices (HICP) inflation is expected to remain low, before gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016”.

In short, only after two years the inflation rate may reach the levels set as appropriate by the ECB itself. The usual statement by all ECB dignitaries is that ‘inflation rates should remain below, but close to 2%’. At the beginning of this week Eurostat, the ECB statistical service, estimated March inflation at 0.5%, the lowest level since the crisis period 2009-2010. During the past few months, since October 2013, the rate of change of HICP is falling fast and posing the threat of deflation. At this point it must be noted that in negative inflation all assets in the economy, nominal and real, may lose large parts of their value, a process which may lead to a real economy crisis and even trigger an economic crash. It becomes obvious that the falling inflation rate constitutes a great threat for Eurozone.

Confronting threats

However, subdued inflation is not the only problem that the ECB sees as a threat. Together with falling inflation, euro area economy seems to stagnate just above zero. Yesterday in his introductory statement, Draghi said that “Real GDP in the euro area rose by 0.2%, quarter on quarter, in the last quarter of 2013, after 0.1% and 0.3% in the previous two quarters respectively. Survey data that encompass the first quarter of this year are consistent with continued moderate growth…” This is a straight forward admission that the ECB has very good reasons to believe that growth will remain quite anemic also in 2014.

It appears that in total, the overall picture for Eurozone is not at all rosy. According to Draghi, “The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth”.

All those negative prospects threatening Eurozone are not new though. Many important economic institutions like the IMF have been ringing the bell for months, seeing stagnation and disinflation in Europe. Now it seems that the EU decision makers in Berlin, Paris, Brussels and Frankfurt, where the ECB is seated, have been finally convinced that there has to be a change of course in Eurozone’s economy, from austerity to relaxation. The historic adoption by the German government of a legal minimum wage at €8.5 on Wednesday and the concession that the ECB may flood Eurozone with more and cheap money, are two infallible witnesses that something is about to change in Europe. It was high time.

As they say better late than never, with Germany about to undertake the role of a real economic leader of Eurozone, accepting policies which will take care of the needs of all member states. Understandably, Berlin is to stop protecting only its own interests, as it was the case since yesterday.

 

Advertising

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

Crime and drugs in West and Central Africa: Security Council highlights ‘new alarming trends’

Lies and reality about incomes and wealth in the EU

Thursday’s Daily Brief: ambulance attack in Libya, #GlobalGoals defenders, human rights in Cambodia, Swine Fever

How tech is helping the agriculture sector curb carbon emissions

Who holds the key to the future of biotechnology? You do

The road ahead to building a more sustainable world

EU to Turkey: No other ties than €3+3bn to upkeep refugees

UN rights chief ‘strongly’ condemns ‘shocking’ mass executions in Saudi Arabia

Thailand gave healthcare to its entire population and the results were dramatic

The end of Spitzenkandidat: EU leaders concluded unexpectedly on EU top jobs

Does the Greek deal strengthen the Eurozone? Markets react cautiously

Innovations for Content Professionals at the DCX exhibition 2018 in Berlin, in association with The European Sting

Safe spaces offer security and dignity for youth, and help make the world ‘better for all’: Guterres

Volkswagen getting away with it in Europe

Is Germany yielding to pressures for more relaxed economic policies?

EU prepares a banking union amidst financial ruins

UN chief sends condolences to families of Malawi flood victims

Here are four ways ASEAN can help entrepreneurs thrive – especially women

Brexit: With May gone the Tory divide is to sink the UK despite Brits wanting to ‘Remain’

Migration Crisis: how to open the borders and make way for the uprooted

FROM THE FIELD: Children in warzones denied right to education

What the world will look like after the Iran and 5+1 deal; the US emerges as major power broker in Middle East

Saudi Arabia: UN experts push for prompt release of women human rights defenders

4 essential qualities for digital leaders

Social Committee teaches Van Rompuy a lesson

European elections: A chance to repel both nationalism and no-deal Brexit

Will Merkel ever steer the EU migration Titanic and restore her power in Germany?

Charlotte in Ghana

The world invested almost $2 trillion in energy last year. These 3 charts show where it went

5G will drive Industry 4.0 in the Middle East and Africa

Social inclusion: how much should young people hope from the EU? 

Globalization is changing. Here’s how your business can adapt

Thursday’s Daily Brief: Ebola in DR Congo, malnutrition in Laos, baby health, support for Sahel force, #ClimateAction

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

MEPs vote for upgrade to rail passenger rights

Guatemala Dos Erres massacre conviction welcomed by UN human rights office

‘Bring to life’ precious moments caught on film or tape, UN agency urges on World Day

Germany loses leading export place

Why is the EU launching a doomed policy in stopping immigrant waves? What are the real targets?

Tackling water scarcity: 4 ways to pull H20 out of thin air

Australia needs to intensify efforts to meet its 2030 emissions goal

European Labour Authority ready to start working in October as decision is taken on new seat

Alice in Colombia

The 28 EU leaders don’t touch the thorny issues

‘Historic moment’ for people on the move, as UN agrees first-ever Global Compact on migration

Ukrainian civil war: Is this the beginning of the end or the end of the beginning?

How drones can manage the food supply chain and tell you if what you eat is sustainable

“The Sea is vast as it admits all rivers”, Ambassador Yang Yanyi of the Chinese Mission to EU gives her farewell address in Brussels

India is investing more money in solar power than coal for first time

Global Citizen-Volunteer Internships

IMF asks Europe to decide on bank resolutions and the Greek Gordian knot

An economist explains the pros and cons of globalization

10th ASEM in Milan and the importance of being one: EU’s big challenge on the way to China

Ghana will grow faster than any other economy this year, the IMF says why

Amsterdam is developing a fleet of autonomous boats to reduce city traffic

5 futuristic ways to fight cyber attacks

In aftermath of Libya airstrike deaths, UN officials call for refugees and migrants to be freed from detention

Germany may prove right rejecting Commission’s bank resolution scheme

Lessons from dealing with the collapse of Lehman Brothers

The right approach to addressing overcapacity problem from a Chinese perspective

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