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.

 

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

State of Health in the EU: shift to prevention and primary care is the most important trend across countries

Canada leading the way on women’s inclusion and empowerment, says OECD

Global Citizen-Volunteer Internships

Suicide Prevention: Using Graduation as a Transformative Tool

Joint press release: Republic of Korea – EU Leaders’ video conference meeting

This is Germany’s $45 billion, 18-year plan to move away from coal

COVID-19 underlines the importance of fintech in emerging markets

Virus Coronavirus: No time to die

Greece @ MWC14: Greek-born mobile champions at MWC 2014

The age of influence: why digital platforms must come clean about political ads

Continue ‘their mission’ urges UN chief, as the victims of the Baghdad bombing are remembered, 15 years on

Gaza: deadly violence continues to escalate, top UN officials work to restore calm

Finnish Prime Minister calls for a more united EU of concrete actions

Mental health: fighting the hidden pandemic

MEPs back plans to promote water reuse for agricultural irrigation

I’m not feeling lucky: The “Right to Be Forgotten” ruling puts Google inside a box

Quality of Europe’s bathing waters remains high, latest annual assessment finds

Guterres calls for ‘maximum restraint’ following drone assault on key Saudi oil facility

These are the world’s safest cities

Building social good – lessons from an Asian giant

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

Post the pandemic: keeping our worlds turning

The megatrend that will shape our working future

Robots aren’t stealing all our jobs, says the World Bank’s chief economist

5 lessons for the future of universities

New El Salvador law, a victory for forced displacement victims: UN refugee agency

Coronavirus: The truth against the myths

YOUTH WILL BE A KEY FOCUS IN THE NEXT EUROPEAN PARLIAMENT

‘Urgent need’ to stop Mali violence with ‘effective’ military response: UN expert

FROM THE FIELD: Faces and Voices of Conflict

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

The ethics of the Medical Technology Civilisation era

Here are five ways we can make mental healthcare better

Educational disadvantage starts from age 10

8 amazing facts to help you understand China today

12 ways the tech sector can help save the climate in 12 years

Four in 10 indigenous languages at risk of disappearing, warn UN human rights experts

State aid: Commission approves Luxembourg guarantee measure to further support economy in coronavirus outbreak

Mergers: Commission approves acquisition of joint control over Prosegur Alarmas by Telefónica and Prosegur

We lack a global framework for saving our environment. Here’s how we change that

Aidex: the Global Humanitarian and Development Aid Event

Why the UN is investigating poverty in the United Kingdom

UN expresses concern following wave of street protests in Iraq and elsewhere

Is co-living an answer to the affordable housing crisis?

Here are three key ways that data analytics can improve the workplace

Don’t understand the US-China trade war? This metaphor could help

OECD’s Gurría calls for overhaul of economic thinking to address global challenges

UN’s AIDS agency ‘greatly encouraged’ by latest scientific breakthrough showing cure is possible

US prosecutors now target Volkswagen’s top management, upsetting Germany

UN should be ‘exemplary’ in defending judicial independence, top Judge tells Security Council

Climate change is a security threat. We must act now

Future of our planet hinges on action by today’s youth – UN deputy chief

UN agency warns conditions around Yemen’s key port city of Hudaydah still ‘very bad’, as staff rush to deliver aid

China’s impact as a global investor; the Sting reports live from World Economic Forum 2015 in Davos

Coronavirus: Commission Statement on consulting Member States on proposal to further expand State aid Temporary Framework to recapitalisation measures

MEPs want to fund crucial areas to stimulate European growth

It’s time for global businesses to accept local responsibility

Turkey remains numb while its economy is expected to shrink further due to a cocktail of EU and US sanctions

This afternoon Britain will be once more isolated from mainland Europe

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

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