Half of Eurozone in deflation expecting salvation from monetary measures

From left to right: Wolfgang Schauble, German Federal Minister for Finance and Ioannis Stournaras, Greek Minister for Finance. Obviously they discuss what Greece and the other south Eurozone countries need most; growth (Audiovisual Services , ‘The Council of the European Union’).

From left to right: Wolfgang Schauble, German Federal Minister for Finance and Ioannis Stournaras, Greek Minister for Finance. Obviously they discuss what Greece and the other south Eurozone countries need most; Growth! (Audiovisual Services , ‘The Council of the European Union’).

Five Eurozone countries posted negative inflation rate in March (Greece (-1.5%), Cyprus (-0.9%), Portugal (-0.4%), Spain and Slovakia (both -0.2%), while the rate of change of consumer prices ranged between 0.1% and 0.3% in another four euro area members states during the same month. In almost all the rest euro area countries, March inflation appeared in lower levels compared with February. This is an infallible sign that the single euro money zone is already suffering from disinflation (falling rate), heading fast to the deflation region of negative consumer price evolution.

In detail, Eurostat, the EU statistical service, announced yesterday that the Eurozone twelve month inflation was 0.5% in March 2014 “down from 0.7% in February. A year earlier the rate was 1.7%. Monthly inflation was 0.9% in March 2014. European Union annual inflation was 0.6% in March 2014, down from 0.8% in February”. The same source reports that during the same month of 2013 inflation in the EU28 was 1.9%.

Alarmed policy makers

There is no doubt that policy makers in governments, the EU and the European Central Bank are alarmed with the prospect of Europe entering a deflation and recession trap soon. Mario Draghi the President of the ECB, speaking last weekend at the IMF and World Bank’s Spring meetings stressed “The rise of the single currency’s exchange rate is one of the main reasons Eurozone inflation is at a dangerously low 0.5%. A stronger euro would act as a trigger to looser monetary policy”.

The European Sting on 14 April reported meticulously, on the brave new monetary policies for growth Draghi announced in Washington, under the title “ECB: A revolutionary idea to revitalize the European economy with cheap loans to SMEs”. However, after the latest Eurostat Press release was published yesterday with estimations, that the inflation rate in half the Eurozone countries (nine of them) ranges between -1.5% for Greece and 0.3% for Italy, things take a much more urgent character.

Deflation is here

Deflation is not any more a future threat, but a real trap for half the Eurozone countries. In the rest of them the rate falls rapidly towards zero. Obviously the main reason of the continuous fall of inflation is the constant rise of the euro with the rest or major world currencies. As Draghi pointed out, “A stronger euro would act as a trigger to looser monetary policy”.

The problem is though that the euro has already attained unbearably high levels for at least half of the single money zone countries and the ECB has done nothing, at least so far. Only Germany can survive with the euro so hideously expensive as to trade for 140 American cents. At that parity levels all the other European countries are in recession or near to it. This means that the ECB should have already undertaken action with more accommodative monetary policies and extraordinary measures. Understandably Germany must have been blocking monetary easing and extraordinary measures to support growth and arrest the rise of the euro. There is positive indication though that this must have changed.

In any case though, acting ‘behind the curve’ is not the best way to counter deflation and recession in the entire southern part of the single money zone. It seems that this is the reason that the ECB is now contemplating more direct measures to support the SMEs, which constitute the back bone of euro area productive machine and jobs supplier. ECB’s plan goes like that: “prime quality Asset Backed Securities (ABSs) could be bought by long-term investors, like insurance companies and pension funds, and thus refinance the lenders and the lenders in their turn accord more loans to SMEs”.

Time to save the SMEs and the euro

Unfortunately this is easier said than done. Reviving the ABSs market is not at all a simple endeavor. More so, if those bank ‘assets’ to be securitised and offered to investors, are SMEs loans. Nevertheless, whatever the difficulties in this direction, the truth is that there is no other way to avoid the deflation and recession trap now, after letting half of Eurozone to have reached its economic, social and also political limits of endurance. The governments of Greece, Italy, Portugal even of France are not at all at ease, and their endurance presumably has an expiration date. Francois Hollande, the French President, was just forced to try a complete government reshuffle. If the new Prime Minister Manuel Valls fails to deliver the difficult combination of growth and fiscal tightening at the same time, the creditworthiness of France may be downgraded.

All that said the ECB has to act soon and it has better be an era changing monetary policy package, as it was the case in September 2012, when Draghi told the world, that the “central bank will do whatever it takes to save the euro”. To paraphrase this quote ‘the ECB must do whatever it takes to save Eurozone’s SMEs and along with them save the euro money itself’. Capital markets seem to have been convinced that the ECB will do all that and investors have already started refinancing the lenders.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Germany’s strong anti-bribery enforcement against individuals needs to be matched by comparably strong enforcement against companies

Pesticides: MEPs propose blueprint to improve EU approval procedure

‘Continue working together’ UN chief urges DR Congo, as country heads to polls

MWC 2016 LIVE: Verizon boasts momentum for IoT platform

How will EU look after French, Dutch and German Elections and what will be the implications for Youth Entrepreneurship?

Elections in Britain may reserve a surprise for May’s Tories

At last Germany to negotiate the costs for a really cohesive Eurozone

Why the Greeks forgave Tsipras’ pirouettes around austerity and voted again for SYRIZA

Cryptocurrency mining could become the new face of energy storage. Here’s how

NEC @ MWC14: “Smart cities” hold the key to enhancing citizens’ lives and cutting costs

The developing countries keep the world going

EU: Divided they stand on immigration and Trump hurricanes

“We always honor our words, and in that respect we expect our partners to honor their words as well”, China’s State Councillor and Foreign Minister Wang Yi highlights live from Brussels

Armed insurgency in north-east Nigeria ‘has created a humanitarian tragedy’

EU Parliament: Deposit guarantee and trading platform transparency sought

This AI outperformed 20 corporate lawyers at legal work

G20 starts to tackle inequality

Batteries included: how better storage can transform renewable energy

Accountability for atrocities in Myanmar ‘cannot be expected’ within its borders – UN investigator

Conflicting statistics and bad banks haunt the Eurozone

Harnessing the power of nature in the fight against climate change

Economic recovery won’t tackle youth unemployment problem

MEPs back plans to boost joint assessment of medicines

Mali: Presidential elections critical to consolidate democracy, says UN peacekeeping chief

Brexit: Is there anybody supporting a non-violent separation?

Trump to subject the Fed, challenge the ECB and make Wall St. bankers even richer

Trump and Brexit: After the social whys the political whereto

Mali not fulfilling its ‘sovereign role’ in protecting its people: UN human rights expert

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

New phenomena in the EU labour market

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

Some Prevailing Arguments and Perceptions over the South China Sea Issue Are Simply Wrong

Digital business is Europe’s best hope to get back to growth

The Tears of lovely Memories

A new arrangement between Eurozone’s haves and have-nots

Eurozone’s north-south growth gap to become structural

EU Emissions Trading System does not hurt firms’ profitability

The increasing drug prices in Europe

Security Council downsizes AU-UN mission in Darfur, eying eventual exit

Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

How the EU crisis hit countries saved the German and French mega-banks from bankruptcy and still pay the costs

‘Global sisterhood’ tells perpetrators ‘time is up’ for pandemic of violence

May a parody constitute a copyright infringement? European Court of Justice to give the answer

Everything you need to know about water

Let the Italians have it their way, it may be good for all Eurozone

MEPs commend Ukraine‘s reform efforts and denounce Russian aggression

Korea must enhance detection and reinforce sanctions to boost foreign bribery enforcement

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

Ercom, cutting-edge Telco solutions from Europe

What do the economic woes of Turkey, Argentina and Indonesia have in common?

EU to negotiate an FTA with Japan

Governments and non-state actors need to take urgent action to meet Paris Agreement goals

An ECB banker wants to change the European social model

Commission tries to solidify the EU statistical system

Could robot leaders do better than our current politicians?

Every bite of burger boosts harmful greenhouse gases: UN Environment Agency

Russia and the West to partition Ukraine?

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

A machine din

EU prepares a banking union amidst financial ruins

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