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.

the sting Milestones

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

UN human rights chief denounces grave ‘assaults’ on fundamental rights of Palestinian people

Solitary Britain sides with US aggressing Russia and chooses hard Brexit

State aid: Commission invites comments on simplified rules for State aid combined with EU support

The energy industry is changing. Are governments switched on?

Countries must up their game to reduce low birth weights, warns UN-backed report

Trump: Hostile to Europe, voids Tillerson’s “ironclad” ally pledge

The impact of COVID-19 on the life of the elderly

UN aid teams scramble to reach ‘most remote places’ cut off by Cyclone Kenneth in Mozambique

Nearly 900 children released by north-east Nigeria armed group

Trade Committee advocates lower tariffs in Western Sahara

5 post-COVID trends from Indian entrepreneurs

Rights experts call for greater protection of indigenous people during migration

Can I still send mail in the time of coronavirus?

FROM THE FIELD: Powering up health care in Sub-Saharan Africa

Capitalism’s greatest weakness? It confuses price with value

The Commission accused of tolerating corruption and fraud in taxation

4 key ways countries can finance their SDG ambitions

Digital Green Certificate is the right move but speeding up vaccination is key

UN chief praises Malaysia’s death penalty repeal as ‘major step forward’

‘Eco-shaming’ is on the rise, but does it work?

Population in crisis hit EU countries will suffer for decades

Total US cases quadruple in one week – Today’s coronavirus updates

How blockchain can manage the future electricity grid

The EU threatens to impose extra import duties on Chinese products

CLIMATE CHANGE FOCUS: The fruits of sustainability and decent work

Venezuelan crisis: MEPs reaffirm their support for Juan Guaidó

Brexit: European Commission recommends the European Council (Article 50) to endorse the agreement reached on the revised Protocol on Ireland / Northern Ireland and revised Political Declaration

Banks must take bold action to fight climate change. This is how they can do it

The Collapse of the Brazilian Health Care System

UN working to prevent attacks on civilians in eastern DR Congo

Adjust UN force in Abyei to current realities, peacekeeping chief urges Security Council

Sweden has a plan to end all traffic accident deaths

The zero that every investment portfolio needs

UN ‘prioritizing needs’, ramping up aid, as Hurricane Dorian continues to batter the Bahamas

Chatterbox Rome Declaration cannot save the EU; Germany has to pay more to do that

4 fixes for equipment supply chains before the next COVID-19 waves hit

IMF: The global economy keeps growing except Eurozone

Climate finance for developing countries reached USD 71 billion in 2017

The Mobile World Congress in Shanghai will take place on 27-29 June 2018

Women in leadership: closing the gender gap in medicine

Why trust and technology go hand-in-hand

Growing a future free of terrorism: UN News special report from Cameroon

The world needs carbon-neutral flying. Here’s how to bring it one step closer

Economic sentiment and business climate stagnate in miserable euro area

Water pollution is killing millions of Indians. Here’s how technology and reliable data can change that

The two big uncertainties shaping our future

‘Water-forecasting’ and fish farms fed on waste: how innovation is driving the blue economy

Blockchain is facing a backlash. Can it survive?

Creating zero-emission aviation with hydrogen and electric power

COVID-19: Commission creates first ever rescEU stockpile of medical equipment

Taxation: Commission refers Poland to Court for failing to remove certain tax exemptions on the use of energy products by highly polluting businesses

A new roadmap for corporate climate governance

It’s time to stop talking about ethics in AI and start doing it

These countries are driving global demand for coal

Protecting workers from biological agents: how to classify SARS-CoV-2

Don’t let smoking steal life’s breathtaking moments, urges UN health agency

Major humanitarian hub in north-east Nigeria burned in attack

From diamonds to recycling: how blockchain can drive responsible and ethical businesses

Migration Crisis: how to open the borders and make way for the uprooted

UN investigates systematic sexual violence across South Sudan

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 )

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