Falling inflation urges ECB to introduce growth measures today

 

Mario Draghi, President of the European Central Bank, Siim Kallas Vice President of the European Commission (from left to right). Kallas acts as interim Commissioner responsible for Economic Affairs and the euro. (Photographic Library of “The Council of the European Union”, 05/05/2014).

Mario Draghi, President of the European Central Bank, Siim Kallas Vice President of the European Commission (from left to right). Kallas acts as interim Commissioner responsible for Economic Affairs and the euro. (Photographic Library of “The Council of the European Union”, 05/05/2014).

Eurostat, the EU statistical service, announced yesterday its flash estimate for May inflation at 0.5%, down from 0.7% in April, thus raising concerns that Eurozone is irreversibly heading to deflation area and confirms fears that the single money zone is threatened by a too low inflation for a too long period of time. Falling prices are recorded in the largest economy of the euro area, Germany. According to the Federal Statistical Office of the country, in April 2014 the index of producer prices for industrial products fell by 0.9% compared with the corresponding month of 2013.

Coming back to Eurostat, the statistical office of the European Union estimates also that in Eurozone the price index for non-energy industrial goods in May remained unchanged (0% inflation) in comparison with the same variable of May 2013. Non-energy industrial goods constitute the heart sector of the EU economy and price & cost developments there reflect the core prospects of the entire economy. The European Central Bank has set the inflation target at below but close to 2%, a level that doesn’t seem achievable if the current forces continue in their course.

It’s not only inflation that falls

Unfortunately, falling inflation is not the only problem of Eurozone. General economic stagnation and recession has been haunting Europe for many years. More than unfortunate, even lamentable is the fact that the government of the largest economy of Eurozone, Germany, is determined to continue on the same policies which have brought Europe to a standstill.

Berlin, from a very narrow national point of view might be right in following austere policies and rejecting so far the extraordinary monetary measures to ‘artificially’ support growth (by printing new money). The country is deprived from natural energy sources, has limited availability of arable lands and thus has to depend on real, not monetarily supported competitiveness for its exports, needed to pay for imports. But all things have a limit. Following these Teutonic policies, Germany has accumulated almost €1 trillion in reserves at the expenses of its trade partners within and without the Eurozone, and all of them France, Italy and the US included, are now strongly protesting.

Still Berlin doesn’t seem to back off from the austere economic recipe. This said, there is no other true European institution in sight than the ECB, to intervene and correct the economic policy mix currently applied invariably on all Eurozone countries, wealthy and agonizing ones alike. Things have come to such a stalemate that all the southern Eurozone countries including France cannot cope any more with the German inspired austerity.

Again it’s the banks

Nevertheless, Berlin probably would have continued on these policy lines if the German banks could cope with the economic stagnation of Eurozone. The mighty Deutsche Bank, which some months ago had been boasting that it didn’t need additional capital injections, has now come out looking for €8 billion in additional equity. In a stagnant economy though all Eurozone banks will find it too difficult to cover their additional capital needs so as to pass the stress tests of equity adequacy and quality, presently conducted by the ECB.

That’s why the German central bank, the Bundesbank, broke first the German defense line and accepts now the introduction of extraordinary monetary measures to be applied by the ECB, in order to support economic growth. The target is to greatly increase the liquidity of Eurozone’s banking system and at the same time impose penalties for the money parked by banks with the ECB. This last measure will probably be an additional goad on banks to lend out the new liquidity they are going to receive and thus support the business sector and households to increase their activities and their expenditure.

Of course ECB’s abilities are more restricted than the one’s of its American counterpart. The Fed in its quantitative easing (QE) has so far spread around the world anything around $5 trillion during the last few years. ECB’s abilities are more restricted and it is still questionable if there will be today any announcement for QE by the euro area monetary authorities.

ECB’s governors meet today

To be noted, the Governing Council of the ECB is holding today its regular monthly policy fixing meeting and after that, President Mario Draghi will deliver a policy presentation Press conference this afternoon. He is expected to announce a reduction of ECB’s main interest rate now at 0.25% and certainly Draghi will also elaborate on the extraordinary monetary measures to be introduced. The fall of the euro against the dollar over the past few days is an infallible witness of the new measures expected from the ECB.

The new measures will have a twofold target. First to increase the liquidity of the banks, induce them to expand their lending to the real economy and reduce the cost of loans and secondly to arrest, even substantially reverse, the many month-long rally of the euro against the other major currencies of the world.

Hopefully all that will help the Eurozone start growing again, thus support the crisis countries and also help the euro area banks recapitalize themselves, through equity issues in the market.

 

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

First 17 “European Universities” selected: a major step towards building a European Education Area

100 years on, UN labour agency mission focussed on growing inequality, says Director-General

Business can be profitable AND drive progress on societal priorities

Cohesion Policy after 2020: preparing the future of EU investments in health

To retire at 65, American millennials need to save almost half their paycheck

UN Chief ‘strongly rejects’ Guatemala decision to expel anti-corruption body

UN agencies call for action to bolster rights of Europe’s stateless children

The world is a book and those who do not travel read only one page

GSMA Mobile 360 in Kuala Lumpur– Digital Societies, in association with The European Sting

What the Fifth Industrial Revolution is and why it matters

Just transition in EU regions: support to people, economy and environment

Happiness apps: how schools are joining the fight for better student mental health

Low productivity jobs continue to drive employment growth

This is why retail is such a sore point in India-US trade relations

Serious concerns over Sahel, require ‘urgent action’: Senior UN Africa official

EU Budget 2019: focus on the young, on migration and innovation

How big data can help us fight climate change faster

Entrepreneurship’s key to success showcased by a serial young entrepreneur

UN Children’s Fund chief condemns ‘horrific’ Kabul bomb attack

EU presses India for a free trade agreement

Former Chilean President Bachelet put forward by UN chief as next High Commissioner for Human Rights

France is bringing back national service

Silicon Valley can do more to achieve the #GlobalGoals

Is Eurozone preparing to abandon austerity and stagnation?

Unemployment and stagnation can tear Eurozone apart if austere policies persist

Lives at risk if wireless technology demands are not held in check: UN weather watchdog

Welfare of transported animals: MEPs urge EU states to do a better job

South Sudan famine threat: UN food security agency in ‘race against time’

How can we make entrepreneurship serve the greater good?

Abu Dhabi is investing $250 million in tech start-ups

EU cross-border payments outside Eurozone: MEPs scrap excessive fees

Restore land to save the planet, boost the economy, says head of UN body combating desertification

COVID-19: Commission provides guidance on EU passenger rights

Africa Forum aims to boost business, reduce costs, help countries trade out of poverty

Teamgum @ TheNextWeb 2014

The global appetite for meat is growing, and it’s harming the planet

All States have ‘primary responsibility’ to protect against hate attacks

End racist discrimination against Afro-European people in the EU

‘Stay at home’ UK tells people as global confirmed cases pass 380,000 – Today’s coronavirus updates

The digital skills gap is widening fast. Here’s how to bridge it

Trump’s Russophiles under investigation, Europe remains ‘en garde’

This Hungarian man quit his job to clean up his favourite river

What’s needed now to fight COVID-19 – Updates from today’s WHO briefing

Endocrine disruptors: A strategy for the future that protects EU citizens and the environment

Youth not prioritised in new Commission

Sudan: top UN official demands cessation of violence and rape against civilians by security forces

MEPs urge the EU to lead the way to net-zero emissions by 2050

Counterfeiters are taking advantage of the pandemic. Here’s how to stop them

Investment, not debt, can kick-start an entrepreneurial Europe

Nearly four million North Koreans in urgent need, as food production slumps by almost 10 per cent

UN rights experts call on Russia to release Ukrainian film-maker whose life is in ‘imminent danger’

Food finally features in the climate debate. Now what?

Terrorist content online: companies to be given just one hour to remove it

Sustainable Infrastructure and Connectivity in the Belt and Road Initiative (BRI): a stimulating China-EU dialogue at European Business Summit 2018

A Sting Exclusive: “Asia-Pacific response to COVID-19 and climate emergency must build a resilient and sustainable future”, by the United Nations Under-Secretary-General

From start-up to scale: This is how governments can accelerate innovation and build inclusive economies

FROM THE FIELD: Enslaved Guatemalan indigenous women wait for reparations

How the world can gear up for the fight against cancer

Mozambique pledging conference hopes to soften devastating blow of back-to-back cyclones

African continent ‘an example of solidarity’ towards migrants and refugees: UN chief

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