Eurozone’s central bank leadership prepares for shoddier prospects

The European Central Bank, under its President Mario Draghi (pictured here) injects every month tens of billions of newly printed euro into the Eurozone’s financial sector. The target is to revive the fading inflation and bring it towards the target of close to 2%, and by the same token revitalize the real economy. Towards this end the ECB bought public and private sector paper securities worth €85 billion in April under its expanded asset purchase program. (ECB Audiovisual Services).

The European Central Bank, under its President Mario Draghi (pictured here) injects every month tens of billions of newly printed euro into the Eurozone’s financial sector. The target is to revive the fading inflation and bring it towards the target of close to 2%, and by the same token revitalize the real economy. Towards this end the ECB bought public and private sector paper securities worth €85 billion in April under its expanded asset purchase program. (ECB Audiovisual Services).

It has become commonplace to state that the European economy still doesn’t fare well after six years of recession or practical stagnation. For good reasons however in the past few days the horizon looked particularly darkened. Negative statistical evidence and meandering statements by key people are indicative of that. Inflation or rather disinflation statistics, persistently high unemployment rates and critical views expressed by important decision makers, all point to a rather bleak perspective. Let’s take one thing at a time.

The latest case of an indirect recognition of the difficult future was a statement by Sabine Lautenschlaeger, a member of ECB’s Executive Board and Vice-Chair of the central bank’s Single Supervisory Mechanism, which supervises the banking industry of Eurozone. In view of ECB’s President Mario Draghi’s remark last March that he did not foresee more interest rates cuts, Lautenschlaeger said “…there are other instruments of monetary policy still available”. She said that at an event in Lucerne, Switzerland. But talking about more monetary easing may enunciate the failure of the so far applied policies, and this could mean grave trouble.

More monetary easing?

Why should such a statement by a European Central Bank dignitary hide fear or anguish about the future? The answer is simply that what Lautenschlaeger said is a clear show off of more available monetary policy instruments, against potential difficulties that may soon arise. There is no need to talk about available armaments in your arsenal, if there is no enemy in sight. Understandably, the enemy around the corner is the possible inability of the European economy, to profit from the zero or too close to zero interest rates, which now prevail in the euro area.

Last month, the ECB cut down its main refinancing rate to a straight 0.0%, prompting certain market segments in the euro area to push interest rates below the zero line. For centuries now, all and every economic theory considers the cost of money as the main factor determining the course of economic activities. Needless to say that low cost money is a great growth factor, while the opposite is true when the money costs dear to real economy investors and consumers.

Can Eurozone react?

What then if the money costs nothing and yet the economy doesn’t respond positively with noticeable growth? The obvious answer is that there is something wrong with the economy or our brave new world. Mind you, that the Bank of Japan has unsuccessfully used even negative real interest rates to revitalize the country’s dormant economy.

Draghi however has clarified that he doesn’t consider further cuts of ECB’s basic interest rate, meaning that negative nominal main refinancing interest rate is out of the question. In such a case, the ECB would have suffered principal losses. Then what if the European economy cannot profit from the zero interest rates? At that point enters Lautenschlaeger reassuring everybody, that there are more monetary policy instruments to stimulate the stagnating euro area. But this is a bitter consolation to the millions of the unemployed. Probably only the bankers would appreciate more relaxed quantitative easing measures.

More bad news

There is more bad news though. Last week Eurostat, the EU statistical service found that in “euro area (EA19) the seasonally-adjusted unemployment rate was 10.2% in March 2016, down from 10.4% in February 2016 and from 11.2% in March 2015”. Despite this marginal fall of unemployment in March by less than a percentage unit, in comparison with last year, the fact remains that the rate of people without a job remains in the double digit area. Obviously, the pace of unemployment decrease is torturously slow. The rise of the extreme right political parties stands as witness that the EU societies cannot stand these unemployment levels.

Last week also, Eurostat estimated that the euro area annual inflation rate fell again below the surface breathing line in April at -0.2%. No need to stress what negative inflation means for the economy and the perils it may entail. According to the same source though, the GDP growth remained in the positive area during the first quarter of this year, with a 0.6% increase in relation to the previous period. Nevertheless, it seems beyond reasonable doubt that this too low growth rate perfectly explains the reality of the tortuously slow fall of the unemployment rate.

In conclusion, the Eurozone economy remains in the precarious area for the sixth year in a row, without a clear ability to attain a sustainable growth path that can bring about noticeable positive effects on employment. Not to forget, that real unemployment rates are double than the official ones, and the voters know this painful reality very well and express their feelings in the ballot box.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Will the three major parties retain control of the new EU Parliament?

Why will Paris upcoming “loose” climate change agreement work better than the previous ones?

IMF’s Lagarde to Peoples of the world: You have to work more for the banks!

LEAGUE OF YOUNG VOTERS LAUNCHES TOOL FOR YOUNG PEOPLE TO COMPARE POLITICAL PARTIES AHEAD OF EU ELECTIONS

EU labour mobility: Inconvenient truths for everybody

Eurozone retail sales fall shows recession

Industrial price dive may lead to point of no return

US, Russia oblige each other in Syria and Ukraine selling off allies

Medical students: The need for emigration

The challenges of mental health: an inconvenient reality

A Sting Exclusive: “Digital and mobile technologies are helping to achieve an economic success in Spain”, the Spanish Secretary of State for Telecommunications and Information Society Víctor Calvo-Sotelo reveals to the Sting at Mobile World Congress 2015

Cameron readies to support ‘yes’ for Britain in the EU

Ship Recycling is the Commission’s Titanic

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

Refugee crisis update: Commission is struggling alone with little help from EU or G7 leaders

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

‘Habitual residence’ rules deprive EU workers from social benefits

‘Free state aid’ for imprudent banks

Europe to turn the Hamburg G20 Summit into a battlefield

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

Will Eurozone be able to repay its debts? Is a bubble forming there?

Will Europe be a different place this Monday?

EU revengefully shows no mercy to Cameron by demanding a fast and sloppy Brexit now

“For my children Italy will be an innovation lab and not a museum”; the Sting reports live from World Economic Forum 2015 in Davos

The world to teach Germans to…un-German

Scotland “shows the way” to separatist movements as Catalonia calls a vote on independence

Draghi hands over to banks €77.7 billion more

The EU Diplomacy in North Korea promotes peace or war?

Why the ECB prepares to flood the markets with more and free of charge euro; everybody needs that now

Germany and Europe prepare for Trump’s America

China in my eyes

What will the US look like under Trump? Was his election campaign a big scam?

Eurozone economy desperately needs internally driven growth

EU makes key TTIP document public as protests get louder

China, forever new adventures

Russia won’t let Ukraine drift westwards in one piece

Trade deals’ pure realism: it may take 10 years for a post-Brexit agreement

A Sting Exclusive: “There can be no global deal on emissions without China and the USA”, Conservative MEP Ian Duncan stresses from Brussels

Huawei answers allegations about its selling prices

Launch of Pact for Youth: European Youth Forum calls for real business engagement

Real EU unemployment rate at 10.2%+4.1%+4.7%: Eurostat Update

Eurozone business activity again on upwards path

Climate change and its adverse impacts on health

ECB should offer more and cheaper liquidity if Eurozone is to avoid recession

October’s EU strong digital mix: From Safe Harbour to Net Neutrality, Roaming and Snowden

Drawing scenarios for drifting Britain; elections or May’s deadlock?

Nitrate pollution of water sources: new impulses for EU Water Policy?

ECB: A revolutionary idea to revitalize the European economy with cheap loans to SMEs

Spanish vote – bad luck for Greece: Does Iphigenia need to be sacrificed for favourable winds to blow in Eurozone?

Foreign direct investments the success secrete of Eurozone

MWC 2016 LIVE: Stripe gives payments leg-up to startups in emerging markets

US – Russia bargain on Syria, Ukraine but EU kept out

The importance of exchanges for the medical students of the world

The ECB will do whatever it takes to set the Eurozone economy again in motion

Commission: Raising the social issues that can make or break the monetary union

Human rights in Brussels and in Beijing: a more balanced approach needed

Mental health of health professionals: the alter ego

Young people are Europe’s biggest value and hope

EU plans to exploit the Mediterranean Sea and the wealth beneath it

ILO: Unemployment to increase by 8.1 million in 2013-2014

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