Draghi left alone with no hope of boosting EU growth as Merkel just focuses on next elections

ECON committee meeting. Monetary Dialogue with President of the European Central Bank. Copyright: © European Union 2016 - Source : EP Audiovisual Service . Location: Brussels, Belgium. Date: 26/9/2016. Photo: Pablo Garrigos

ECON committee meeting. Monetary Dialogue with President of the European Central Bank.
Copyright: © European Union 2016 – Source : EP Audiovisual Service . Location: Brussels, Belgium.
Date: 26/9/2016

It was last Monday when the president of the European Central Bank (ECB) discussed with members of the economic and monetary affairs committee at the European Parliament (EP) about the EU economy in the aftermath of the UK referendum, revealing that the euro area economy shows notable adjustment properties to the global economic and political uncertainty.

Mario Draghi also urged national governments with more fiscal capacity in their hands, pointing the finger to Germany, to use their surpluses to boost growth and reduce unemployment rates. Otherwise the EU economy will continue weakening and the ECB will try to revive it by further lowering its rates.

ECB’s president slightly intervened in the Brexit talks mentioning that the EU’s single market should be respected and UK should not get any favors. Hence, it is quite clear where the ECB will be standing during the negotiations.

Will low inflation be raised in the medium-run?

The president of the ECB told during his speech at the EP that “eurozone is continuing an economic recovery at a moderate and steady pace but lower than envisaged in June due to a lower foreign demand outlook”. The official forecast figures of ECB regarding inflation rates reveal an increase in the coming few years reaching 1,6% in 2018.

However, the 0,2% inflation rate forecast in 2016 combined with the fact that national governments are not adding considerable growth to the EU economy is making things even harder for the ECB and also for the European citizens. Consequently, it is quite difficult for the ECB’s inflation rate target of 2% to be reached in the medium-run. Furthermore, lowering the interest rates even more for a longer period of time will limit ECB’s conventional tools affecting thus financial stability.

Germany against ECB’s monetary policy

German Finance Minister Wolfgang Schaeuble has been critical against ECB’s policy and Mario Draghi’s statements regarding the unwillingness of Germany to use its surplus and increase spending. Wolfgang Schaeuble blames partly Draghi’s policy on low interest rates to have caused the rise of populist parties.

Hence, the German Finance Minister has urged lawmakers to hold a hard stance against the president of the ECB at the close-door meeting that is taking place today in Berlin. Will Mario Draghi be able to convince lawmakers to change their policy and boost the EU economy by spending more money now or his words will fall on deaf ears leaving once more the ECB alone in the fight for the revival of the EU economy?

Germany’s open fronts

The most powerful economy in Europe is facing too many challenges to be able to provide solutions to each and every problem out there. The refugee crisis, the Brexit, the sluggish EU economy and Deutsche Bank nightmare constitute some of the major risks that Germany tackles at the moment and plays a pivotal role to their solution.

As far as the EU economy is concerned, Angela Merkel and Wolfgang Schaeuble will probably not change their policy especially now that Brexit uncertainty is affecting its economy as UK is the second-largest destination for German exports. What is more, the Deutsche Bank problems have caused serious turbulences to the German administration forcing the German Chancellor to state that she will not bailout the biggest German lender, in an attempt to show that the government is holding tight in view of the coming elections. Deutsche Bank stated two days ago that there is no need for governmental help to settle the 14 billion dollars demand from the U.S. Department of Justice which claims that the bank missold mortgage-backed securities during 2005 and 2007.

However, the statement of Angela Merkel could probably be recalled, which will not be the first one, when and if the German bank cannot settle the above claim on its own putting extra pressure on the German Chancellor to minimise the side effects in the German and European economy. Besides, hasn’t the same happened with Spanish, Portuguese and Greek banks in the past?

Britain should get no exception in EU single market rules

Mario Draghi said among others last Monday that all participating members are “subject to the same rules” respecting the single market. Despite ECB’s resilience after the outcome of the UK referendum on June 23, it is still too soon to judge whether the EU economy has not been or will be affected since the negotiations between Britain and the EU have not yet started and are about to hold for at least two years after Theresa May finally invokes article 50 of the Lisbon Treaty.

Therefore, the president of the ECB is another factor in the Brexit equation that will support existing EU rules with no exceptions for the UK. Particularly, Mario Draghi told the EU lawmakers on this issue: “It is very hard to imagine that any agreement that will be perceived as discriminatory against some subjects or in favour of other subjects could be a source of stability for the future of our EU”.

All in all, the ECB will have to fight sluggish growth and low inflation rates when counties with adequate economic ability express their unwillingness of helping. Germany has its own open internal and external fronts to deal with and Deutsche Bank is among the main issues that could affect Angela Merkel’s popularity in next year’s elections.

But as the ECB’s tools are further limited, inflation rates will remain at low levels. Thus, it seems that the ECB will be left alone at the moment and also that its monetary policy seems incapable of sustaining the bloc’s recovery and thus bolstering growth and demand in the Old Continent.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Destabilizing Lebanon after burning Syria; plotting putsch at home: King and Crown Prince of Saudi Arabia

Why Eurozone’s problems may end in a few months

EU members commit to build an integrated gas market and finally cut dependency on Russia

Migration has set EU’s political clock ticking; the stagnating economy cannot help it and Turkey doesn’t cooperate

Earthquake: Monte Dei Paschi Di Siena

European Youth Forum celebrates 20 years of fighting for youth rights

Population in crisis hit EU countries will suffer for decades

Junior Enterprises as a solution for Youth Entrepreneurship

China and UK relations post Brexit as EU addresses Chinese takeovers

European Young Innovators Forum @ European Business Summit 2014: Europe for StartUps, vision 2020

Turkey’s Erdogan provokes the US and the EU by serving jihadists and trading on refugees

The banks want now free capital from taxpayers

What do Europeans believe about the crisis and the possible way out?

Tackling youth unemployment through the eyes of a European entrepreneur

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

Europe’s top court hears Intel and sends € 1.06 bn antitrust fine to review

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

France and Poland to block David Cameron’s plans on immigration

Manufacturers Get Smarter for Industry 4.0

It’s EU vs. Google for real: the time is now, the case is open

Elections results: Austerity’s black to prevail in the new multicolored German government

EU free-trade agreements with Canada and US: imagine the fallout if put to national referendums

Managers’ pay under fire

A new world that demands new doctors in the fourth industrial revolution

Governments and non-state actors need to take urgent action to meet Paris Agreement goals

European Commission: Does Apple, Starbucks and Fiat really pay their taxes?

The Americans are preparing for the next financial crisis

Kellen Europe Hosts EuroConference 2016

Failing to see reality or deceiving the masses? The EU about poverty and social exclusion

Eurozone: Economic sentiment-business climate to collapse without support from exports

Eurostat overturns Commission’s assessment of the economy

Can the Americans alone determine the future of Syria?

EU Parliament: It takes real banks to fight unemployment and recession

Is there a chance for the West to win the war on terror?

On Grexit: Incompetence just launched the historic Ultimatum that could open “pandora’s box”

Refugee crisis: Commission proposes a new plan urging EU countries to help Italy

The challenges of mental health: an inconvenient reality

Rising political extremism in Europe escapes control

European Youth Forum demands immediate action & binding agreement on climate change

Four major resources for new European young entrepreneurs

Far from a healthy Health Workforce: lack of workforce planning leaves our citizens without access to proper care

“BEUC cautions against TTIP that would seek to align EU and US chemicals management frameworks”

Crimean crisis: not enough to slow down European indices

Access to health in the developped and developing world

Macro-Financial Assistance: Europe’s way to control Ukraine?

Eurozone: Economic Sentiment Indicator recovering losses

Dutch voters reject EU-Ukraine partnership and open a new pandora’s box for the EU

COP21 Breaking News_03 December: There is a new draft agreement on the negotiating table

CDU-SPD agree the terms for EU’s Banking Union

Who threatens the lives and livelihoods of Ukrainians?

JADE Testimonial #3: Sebastian @ Fundraising

At last a solid base for the European Banking Union

How Greece was destroyed

Will the European Court of Justice change data privacy laws to tackle terrorism?

Youth unemployment: No light at the end of the tunnel

Let the Italians have it their way, it may be good for all Eurozone

The MWC14 Sting Special Edition

Berlin repels proposal for cheaper euro

Is the EU’s enlargement over-stretched?

G20: Less growth, more austerity for developing countries

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