How bad is the Eurozone economy? The ECB thinks too bad

Eurozone Summit, 07/07/2015. Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor, Jean-Claude Juncker President of the EU Commission and Mario Draghi, President of the European Central Bank (ECB) taking his sit (in the foreground, from left to right). (EC Audiovisual Services, Date: 07/07/2015, Location: Brussels - Council/Justus Lipsius).

Eurozone Summit, 07/07/2015. Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor, Jean-Claude Juncker President of the EU Commission and Mario Draghi, President of the European Central Bank (ECB) taking his sit (in the foreground, from left to right). (EC Audiovisual Services, Date: 07/07/2015, Location: Brussels – Council/Justus Lipsius).

Last Monday this newspaper questioned the ability of Eurozone’s economy to continue growing even at the negligible rate of three decimal points of a percentage unit, as Eurostat found it for the second quarter of this year. It also pointed out that the danger of recession is increasing and that the risk of deflation (negative inflation), a dreadful eventuality by any account, is rising. The European Sting based these gloomy prospects on some negative developments in the critical fields of retail trade, industrial production and the labor market.

Regrettably for us all, the hard working and the unemployed Europeans, only a few days later Mario Draghi the President of the European Central Bank, predicted on Thursday afternoon that, “The information available indicates a continued though somewhat weaker economic recovery and a slower increase in inflation rates compared with earlier expectations”. A weaker economic growth than 0.3% and a lower inflation rate than 0.2% (in August unchanged from July and June) may very well refer to prospects pertaining to the part of the graph below the zero line. What could be more frustrating for the average man in the streets of the major euro area cities than a prospect of a new recession and deflation?

Is a new recession brewing?

In detail now, last Thursday the Governing Council of the ECB held its monthly cession and afterwards its President Mario Draghi and Vice-President Vítor Constâncio delivered their traditional Press conference. Apparently they wanted to pass on the relevant policy changes realized on that morning and there were a lot. For one thing, the ECB now predicts lower growth and inflation from the already meager figures. As expected though the Governing Council decided to keep the basic ECB interest rates unchanged.

Starting from the non-standard monetary policy measures and, more precisely, the sovereign bond buying program of a total value of €1.14 trillion, “The Governing Council decided to increase the issue share limit from the initial limit of 25% to 33%”. This means the ECB can now buy more bonds from a certain debt issue of a specific country. This is obviously a measure aiming at increasing the ability of the ECB to support the euro area member states which need more such backing. This means that some euro area countries are in worse shape than they look.

More than €1.14 trillion is needed

Draghi didn’t stop there. He went much further and said that “In the meantime, we will fully implement our monthly asset purchases of €60 billion…They are intended to run until the end of September 2016, or beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”.

In reality, this means the ECB is ready to expand this program in time and value. At the same time this quote points to the fact that the ECB rather believes such an expansion will be in fact needed. This is the first time that the ECB is so clearly predicting that more monetary easing may be needed in order to support the stagnating euro area economy and aid some of its ailing member states. After this statement the euro fell fast with the dollar to much lower levels (1.1127 ).

New money to be printed

Understandably, Mario Draghi and the ECB Governing Council have not gone that far in anticipating a marked deterioration in the euro area economic climate without very good reasons. Last Thursday afternoon on many occasions Draghi referred to the negative repercussions from the worsening situation in the external environment, through lower trade and investment volumes. The fast worsening prospects of the developing countries may most probably affect Eurozone sooner and worse than estimated until recently. That’s why he spoke about “heightened uncertainties related to the external environment”. The President of ECB wouldn’t have used such strong phrase, if the situation wasn’t critical.

Of course he had to substantiate those fears with evidence. The following quote is very enlightening about that. He stated “This assessment (for lower inflation) is also broadly reflected in the September 2015 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2015, 1.1% in 2016 and 1.7% in 2017. In comparison with the June 2015 Eurosystem staff macroeconomic projections, the outlook for HICP inflation has been revised down, largely owing to lower oil prices. Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September staff inflation projections”.

Preparing for deflation

Now if the ECB prediction for the 2015 at 0.1% has to be corrected downwards due to ‘most recent developments’, one can easily understand that Draghi very openly anticipates zero or negative inflation this year. If this proves to be correct, and it most certainly will, the Eurozone and probably the world economy may have a very bad year in 2015 and an even worse beginning for 2016.

At this point it has to be noted that the above mentioned overoptimistic predictions for more inflation (and why not higher growth rates) in 2016 and 2017 are quite conventional for an institution like the ECB. A less optimistic forecast could become a self fulfilling prophecy. Pessimistic predications from institutions like the ECB can just by themselves trigger a crisis.

Stating it clearly

Yet despite this danger Draghi, in answering a journalist’s question said plainly, “We may see negative numbers of inflation in the coming months”. On the same occasion he clarified that if the need appears “There aren’t special limits to the possibilities that the ECB has in gearing up monetary policy. And in a sense, the decision we’ve taken today, in changing one of the parameters (from 25% to 33%) … is exactly a sign”.

In short, what Draghi said last Thursday is actually a repetition of his famous phrase of July 2012, when amidst the Eurozone sovereign debt crisis he reassured the world that, “we will do whatever it takes to save the euro and believe me it will be enough”. If the ECB feels that things have arrived at a point that such a reassurance is again necessary, then things are not rosy at all for the hard working and the unemployed Europeans.

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

Genocide threat for Myanmar’s Rohingya greater than ever, investigators warn Human Rights Council

6 ways China and the United States could jumpstart trade reforms

How young people are shaping the future of sustainable fashion

Transport Committee approves major reform of road transport sector

Five ways individuals can help save the oceans

Missile strike kills at least 12 civilians, including children, in Syria’s Idlib: UN humanitarians

This is what a smart city should do for its people

Germany readies to pay for the Brexit gap in EU finance

EU is now giving Google new monopolies to the detriment of European citizens and Internet companies

Commission to decide definitely on genetically modified Maize 1507 seed

Vaccinations and the movement of anti-vaccers

Traditional finance is failing millennials. Here’s how investing needs to change

Civil society groups matter for Cambodia’s sustainable development: UN expert

‘Embrace the transformation’ to a carbon-neutral world by 2050, UN chief tells COP25

Women in Switzerland have gone on strike – this is why

Global Citizen – Volunteer Internships

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

‘Stop and listen’ to victims of terrorism, UN chief urges in message marking international day

UN agency plan tackles ‘hidden cost’ of gold, paves way for safer, mercury-free mining

These 5 countries plan to slash their CO2 emissions. But how will they do it?

Circular Plastics Alliance: 100+ signatories commit to use 10 million tons of recycled plastic in new products by 2025

Coronavirus has exposed human rights gaps. We need to fix this

Russia and the West to partition Ukraine?

“China will strive to enhance the performance of economic growth”, President Xi highlights from the World Economic Forum 2017 in Davos

Sustainable finance: Commission publishes guidelines to improve how firms report climate-related information and welcomes three new important reports on climate finance by leading experts

Sweden is a top performer on well-being. Here’s why

COVID-19: Commission launches European team of scientific experts to strengthen EU coordination and medical response

Pandemic and quarantine: What can we do for our mental health?

Larger species are more at risk of extinction than smaller ones – here’s why

Cyprus banks under scrutiny

Trade negotiations with US can start under certain conditions

Currency Union might not let an independent Scotland join the EU as the “Yes” front now leads

We must stop a devastating ‘battle to the end’ in southwest Syria, declares UN envoy

Radio still a powerful worldwide tool for ‘dialogue, tolerance and peace’: Guterres

Boom in Artificial Intelligence patents, points to ‘quantum leap’ in tech: UN report

UN envoy says he ‘is ready to go to Idlib’ to help ensure civilian safety amid rising fears of government offensive

Young activists share four ways to create a more inclusive world

Doctors without borders

Meet the woman prescribing books as a cure

UN-based World Summit Award (WSA) presents its master list on digital innovation with impact on society from 24 countries

‘Historic’ new Syria talks should focus on relief for war-weary civilians, says UN negotiator

10 months were not enough for the EU to save the environment but 2 days are

Who really cares about the 26.2 million of EU jobless?

Hostilities in Syria’s southwest, mean cuts in vital aid across Jordanian border: Senior UN official

Commission takes further action to ensure professionals can fully benefit from the Single Market

‘Historic’ moment: Palestine takes reins of UN coalition of developing countries

‘Repeated attacks’ could close down key hospital in eastern Libya, says WHO

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

1 in 7 people would choose not to fly because of climate change

Students in Milan are moving in with the elderly to fight loneliness and save money

The JADE Spring Meeting is about to begin

A young doctor from Glasgow reports: in the UK refugees are left to rot

COP24: green, gender focus, as UN’s crucial climate change conference gets underway

Will we join hands for a tomorrow without antimicrobial resistance?

8 steps towards a sustainable economic recovery

What we need for a better European Solidarity Corps

Tobacco in Pakistan: is it worth to burn your money?

The Council unblocks all EU budgets

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

UN condemns attack that leaves one ‘blue helmet’ dead in Central African Republic

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