The ECB tells Berlin that a Germanic Eurozone is unacceptable and doesn’t work

Departure and doorstep comments by Wolfgang Schauble, German Minister for Finance, at the Eurogroup meeting of 24 April 2015, in Riga, Latvia. The German minister is Eurogroup’s opinion maker when it comes to serious matters as for example Greece’s position in or out of Eurozone. (European Council - Council of the European Union, Newsroom. Shoot date: 24/04/2015 Riga, Latvia. Snapshot from a video footage).

Departure and doorstep comments by Wolfgang Schauble, German Minister for Finance, at the Eurogroup meeting of 24 April 2015, in Riga, Latvia. The German minister is Eurogroup’s opinion maker when it comes to serious matters as for example Greece’s position in or out of Eurozone. (European Council – Council of the European Union, Newsroom. Shoot date: 24/04/2015 Riga, Latvia. Snapshot from a video footage).

Last week Eurostat, the EU statistical service, confirmed that Eurozone inflation was stuck at zero percent in April, remaining in the region of deflation. No need to mention what a too low or zero or negative inflation means for a stagnating or even receding economy. Add to that the perilous position of Greece in and out of Eurozone, with Germany setting the rules in this game, plus the new and capricious political chapter in Spain which opened after last Sunday’s municipal elections; no wonder why the euro is losing ground and the European capital markets watch their capitalization drifting. Let’s take one thing at a time.

Eurostat’s estimates of inflation are published on a monthly base. At the end of every month the statistical service releases a flash estimate of the inflation rate for the last 30 days, which is confirmed or corrected around the 20th day of the next month. In the case of this April inflation rate Eurostat confirmed that inflation was a straight zero. On the shaky character of the Eurozone’s economy the ‘European Sting’ commented last week (18 May) that, “… unfortunately for us all, Eurozone doesn’t look like having abandoned the dangerous area of deflation and recession…”.

Uncertainty prevails

The prevailing economic and in some respects political uncertainty in the euro area has prompted the European Central Bank to introduce unconventional monetary policy instruments, to fight disinflation (falling inflation) and deflation (negative inflation). Obviously the ultimate target is to help the economy enter a solid growth path. The latest and more powerful of those extraordinary tools is the sovereign bond purchases program, which is financed through issuing and using of at least one trillion  of freshly printed euros in total.

This public bond buying plan started last March with a round sum of €60 billion and is expected to continue at the same or increased monthly spending pace until September 2016. However Germany had been opposing it since its inception in November 2014. Currently the Berlin government and the country’s central bank, the Bundesbank continue undermining it.

Germany doesn’t care much

It seems though that the qualified predictions about inflation are not at all encouraging and the ECB must have evidence for more retrogress. As a result, despite the strong German opposition to the government bond purchases program, the ECB has decided to reinforce rather than weakening it. This fact may also indicate the extent of the deflation risks Eurozone is exposed to. The decisiveness the ECB shows in this case is unparalleled.

Mersch says it loudly

Nevertheless such things have to be spelled out loudly in order to help enhance the effects of the actual action and ECB’s governors know that very well. To this effect, Yves Mersch, member of the inner Executive Board of the ECB, speaking in Stockholm on 18 May 2015 said: “asset purchases have a strong signalling effect. They send a powerful signal…which helps re-anchor inflation expectations and lower real interest rates. And they also signal that liquidity…further supports the easing of real interest rates and the exchange rate. The effectiveness of these signaling effects is predicated on the implementation of our program in full…that is, we will maintain the pace and volume of our intervention until we see a sustained return of inflation towards a level below, but close to, 2 % over the medium-term”. Obviously this means lower real interest rates, a prospect that Germany detests.

Mersch went even further and clarified that the ECB won’t back off from considering deflation as ‘enemy’ No1. He clarified that “The diminishing price pressures over recent years have required the ECB to act forcefully and repeatedly to fulfill its mandate. This culminated in January 2015 with our decision to expand our asset purchase program to stave off deflationary risks and stop the fall of inflation expectations…we will safeguard price stability no matter what. This is our mandate as enshrined in the Treaty. And although our instruments have changed our conviction and mission have not”.

Accusing Germany

In concluding, he went as far as accusing, albeit indirectly, Germany and the German moneybags of trying to bully ECB towards serving the very interests of Berlin, and thus neglecting the interests of every other euro area member state. He stressed that, “Some might wish that we use our armory for other purposes. But we will not be moved. We are an independent institution. Our rules are non-negotiable and we do not act for the benefit of interest groups or individual countries. Nor can financial stability considerations override our primary objective”. Such unusually strong language used by a central banker is a double-edged sword though.

A message with double meaning

It’s apparent then that the clarity, the force and even the fervor that Mersch showed in Stockholm have a double meaning. Of course his prime target was to put emphasis on the fact that the ECB is unstoppable in what it does. There is one more possible interpretation though. The strong words he used may also mean that the ECB may be in a difficult position. It may be running out of ammunition, if its present action doesn’t produce the desired results. That’s why he is so openly scolding those who undermine ECB’s policies.

Hopefully those monetary instruments the central bank is using for the first time turn out the much wished for outcome. The ECB through Mersch recognized – again for the first time – that its monetary policy has as a target to ‘ease the exchange rate’. Until now the ECB denied that it targets any specific exchange rate, presumably out of concern about possible retaliation from the other major central banks. However, it seems that in view of the shakiness of the current economic and political circumstances, the ECB is using all the ammunition it has.

The ECB cries out

Unquestionably, Mersch’s speech in Stockholm set a new platform for ECB’s policies. Understandably, the magnitude and the extent of his revelations couldn’t be without the consent of Mario Draghi. Actually certain circles accused the former of revealing ECB’s new policies to a restricted audience before being officially communicated and thus placing every other investor in a disadvantageous position.

Unfortunately, all that does not offer any comfort and reassurance to us all, workers, pensioners and the unemployed of Eurozone.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Bank resolutions to remain a politically influenced affair

ECB intervenes to clean May’s and Schäuble’s mess

Young students envision turning Europe into an Entrepreneurial Society

No better year for the EU’s weak chain links

ECB settles the bank resolution issue, makes banking union tangible

“Austerity was not the alternative!”, President Hannes Swoboda of the European Socialists and Democrats on another Sting Exclusive

How the Irish people were robbed by banks, the Commission and their own government

“China is the only BRICS country to have either met or possibly slightly surpassed my expectations”, BRICS inventor Jim O’ Neil from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

Alice in Colombia

Oh, well, you are wrong, Google responds to the European Commission

Yanukovych attempts a violent and deadly cleansing of Kiev’s center

Is the EU denying its social character favouring a banking conglomerate?

Eurozone: Retail sales betray economic frailty

A Sting Exclusive: “China is Making Good Stories not Bad Ones”, Ambassador Yang highlights from Brussels

It’s not summer holidays what lead to the bad August of the German economy

ECB offers cheaper money despite reactions from Germany

A Sting Exclusive, the European Commissioner for Energy Günther Oettinger writes for the Sting on “EU Industry: a major energizer”

How did Facebook fool the Commission that easily during the WhatsApp acquisition?

The 28 EU leaders don’t touch the thorny issues

Italy’s rescue operation Mare Nostrum shuts down with no real replacement. EU’s Triton instead might put lives at risk

The EU seals CETA but plans to re-baptise TTIP after missing the 2016 deadline

WEF Davos 2016 LIVE: “You just don’t know if the oil price will be 20$ or 100$ in the next 2-3 years!” top Harvard economist Kenneth Rogoff underscores from Davos

A new proposal breaks the stalemate over the Banking Union

Brussels waits for the Germans to arrive

Exchanges of medical students and the true understanding of global health issues

Warmongers ready to chew what is left of social protection spending

Has Germany rebuffed ECB on the banking union?

Who really cares about the 26.2 million of EU jobless?

EU to pay a dear price if the next crisis catches Eurozone stagnant and deflationary; dire statistics from Eurostat

168 hours left for MEPs – ECOFIN Council to deliver a Banking Union

The consequences of Brexit seen by a European young entrepreneur

MWC 2016 Live: Roshan CEO opens up on Afghanistan challenges

Deutsche Bank again in the middle of the US-EU economic skirmishes

MWC 2016 LIVE: Intel focuses on 5G “beyond the Powerpoint”

Global Citizen-Volunteer Internships

The umpteenth Italian overturn takes Renzi and PD to unprecedented victory at EU elections

EU-US relations on the dawn of the Trump era

Parliament asks for the termination of EU-US bank data deal

A sterilised EMU may lead to a break up of Eurozone

Christmas spending: Who can afford not to cut?

The Social Committee may accept the new ‘contractual’ Eurozone

Germany to help China in trade disputes with Brussels

Will ECB win against low inflation by not following Quantitave Easing?

South Eurozone countries threatened by rising borrowing cost and expensive euro

Lithuania finds the ways to maintain its energy security

EU to fail 2050 Green targets due to lack of European citizens’ engagement

EU’s new environmental policy on biofuels impacts both the environment and the European citizen

To my Chinese friend

Community Manager – 1289

The strong version of the EU banking union gains momentum

How Germany strives to mold ECB’s monetary policy to her interests

A day in the life of a Venezuelan migrant in Boa Vista, Brazil

Schaeuble wants IMF out and bailouts ‘a la carte’ with Germany only to gain

EU-Russia relations: the beginning of a warmer winter?

EU Commission closer to imposing anti-dumping duties on Chinese solar panel imports?

Paris agreed with Berlin over a loose and ineffective banking union

Banks, insurance giants are free again to abuse the real economy

Commission deepens criticism on German economic policies

Commission facilitates the activities of ‘merchants of labour’

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 )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s