Trailing the US-EU economic confrontation

European Central Bank. Main building in Frankfurt am Main, Germany, illuminated. (Work of ECB Audiovisual Services).

European Central Bank. Main building in Frankfurt am Main, Germany, illuminated. (Work of ECB Audiovisual Services).

More than one economic pundit felt relieved learning that Eurostat, the EU statistical service last Friday estimated the September CPI inflation in Eurozone at 0.4%, the highest level in two years. Understandably, they think that the stagnating and almost deflationary euro area is leaving behind its grim past, aided by ECB’s liquidity injections of €80 billion, which the central bank adds every month into Eurozone’s undercapitalized banking system. But is it so? Is the euro area leaving behind its gloomy past? Let’s dig into that.

Up to now, the ECB has printed and injected around €1.45 trillion into the European banking system under its non-standard monetary policy measures (asset purchases programs), which kicked off in March 2015. There is more to it though. On 29 June, over the period of just a few hours, the ECB handed €399.29bn to European banks through a credit line called Long Term Refinancing Operations (LTROs).

ECB for a rainy day

That surely was a wet day for all the major European banks (HSBS, Barclays, Royal Bank of Scotland, Lloyds Banking Group, Deutsche Bank, Commerzbank, KfW, BNP Paribas, Crédit Agricole and Société Générale). They lost up to one fifth of their market value in a few hours, paying the price for the Brexit. The banks will keep those 399.29bn, until 4/6/2020 at an almost zero interest rate. They Surely need it to keep them going, but will it be enough? And does the treatment entail any risky side effects?

In normal market conditions, no investor would have lent money to those bankers, at least not at zero interest. But the ECB is not an investor, because its management doesn’t deal with their own money, but with the money of us all. From the day of the Brexit onwards, the ECB keeps generously supporting all the European banks, as was the case on 28th of September. On that day the ECB handed €45.27bn to European banks in a number of LTROs. In reality, there is no end to the daily transfers of money from the ECB to euro area banks.

Dealing with our money

The German banks are ‘regulars’ at ECB, pleading for much zero cost money. This fact though doesn’t prevent Wolfgang Schäuble, the Federal Minister of Finance, from complaining that the ECB is needlessly pushing interest rates too low, depriving the German pensioners who vote for him, from an extra income on their deposits. This means the German politicians who govern the country for at least ten years now want to continue doing so at the expense of ECB.

Obviously, the Berlin governing elite wants the central bank to keep supporting the agonizing German lenders, with hundreds of free billions. At the same time, they use the ECB as their scapegoat, so that they get reelected in the 2017 legislative vote. In short, the German governing elite is now working under a twelve month plan aimed at winning the 2017 election and keeping the lenders going. It includes pressuring the ECB to keep supporting the country’s ailing banks (Deutsche Bank, Commerzebank and KfW) and at the same time demanding that the central bank patiently accepts Berlin’s criticism about spreading around too much money at zero cost. Obviously, the Merkel government doesn’t want to be seen by voters as the rescuer of imprudent and unscrupulous bankers.

The Germans want it all

For this Berlin strategy to work though, the Eurozone has to show some kind of revitalization. Otherwise, ECB’s billions won’t be enough to keep the euro area financial system going until September/October 2017, when Germany is to hold a general election. In this respect, the 0.4% inflation estimate is a sign that Eurozone may have overcome its double problem of stagnation and disinflation.

But the miracle has to continue. If, during the next few months, inflation returns to its usual position around zero, then the Schäuble dream cannot come true. That’s why, from now on, the German government will be the most keen inflation watcher. The Americans will also be watching the Eurozone inflation and they will continue pressing their case against Europe, targeting the Old Continent’s weakest point; its banks.

The Americans won’t stop

If inflation in Eurozone keeps rising towards the ECB’s target of 2% signalling a possible economic upturn, this good prospect will certainly alleviate some banking problems in Europe. In this case, the Americans will increase their pressure on European banks, making sure that it’s just enough to keep the EU lenders at a point between life and death. Obviously, the US doesn’t want Europe dead, but it doesn’t want it strong and obstinate either. In short, inflation will be the gauge of American pressure on European banks, more inflation and growth – more pressure.

But Eurozone keeps faltering

In any case, Eurozone is far from reaching a sustainable growth path. According to a last Wednesday Reuters report, “Euro zone business growth fell last month (September ) to its weakest since the beginning of 2015, according to surveys providing the latest evidence the bloc’s economy is losing momentum”. In short, Eurozone doesn’t seem able to gain a long term economic revitalization course, at least not in the foreseeable future.

Given that, the Americans may compromise with Deutsche Bank and conclude an agreement below their initial proposal for a $14billion fine, as presented last week by the US Department of Justice. Well informed sources in New York say that the Department may accept a German counteroffer for a settlement around $5bn to $5.5bn. This is enough though to soak up all Deutsche’s reserves set aside for litigations. Perceptibly, the Americans don’t want to leave much maneuvering space to Deutsche.

In conclusion, the 0.4% Eurostat inflation estimate for September in Eurozone doesn’t seem to change the current circumstances much. The EU and the US will continue confronting each other in the economic field. Undoubtedly, the Americans have the advantage. This is so not only because the US operates seven mighty war fleets around the world’s oceans, but also because Europe is more dependent on New York’s financial structures than the other way around.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

On Human Rights Day European Youth Forum calls for end to discrimination of young people

This afternoon Britain will be once more isolated from mainland Europe

Eurozone: Disinflation engulfs the industrial goods sector

Vulnerable young people must not be blamed & stigmatised for violent radicalisation

Britain and Germany change attitude towards the European Union

Alice in Colombia

The Parliament defies a politically biased Banking Union

The big challenge of leadership and entrepreneurship in Europe

Eurozone’s north-south growth gap to become structural

On the euro but out of it?

EU sets ambitious targets for the Warsaw climate conference

Intel @ MWC14: Our Love Story with Mobile – Transforming Wireless Networks

Trump asked Merkel to pay NATO arrears and cut down exports ignoring the EU

Everybody against Germany over the expensive euro

Doctors without borders

Arlington, USA: kick-off of the fifth round of the EU-US boxing match

European Confederation of Junior Enterprises hosts in Geneva the Junior Enterprise World Conference

ECB embarks on the risky trip to Eurozone banking universe

Medical students: The need for emigration

While EU Open Days 2013 discuss the 2020 strategy, Microsoft shares a glimpse of EU 2060

The scary EU elections result and the delayed Council’s repentance

China’s stock markets show recovery signs while EU is closely watching in anticipation of the €10bn investment

Germany fears that Americans and Russians want to partition Europe again

Trailing the US-EU economic confrontation

YOUTH RIGHTS AT RISK FROM RISE OF EXTREME-RIGHT AND POPULISTS IN THE EUROPEAN PARLIAMENT

EU to negotiate an FTA with Japan

ECB readies itself for extraordinary monetary measures defying Germany

Zhua Zhou: Choosing The Future

Marco Polo’s Dream

Any doubt?

Happens now in Brussels: Green Week sets the EU and global climate policy agenda

The completion of the European Banking Union attracts billions of new capital for Eurozone banks

Germany to help China in trade disputes with Brussels

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

Access to health in the developped and developing world

Will the EU ever tackle the migration crisis despite the lack of political will?

GSMA Mobile 360: Connecting Cities, Connecting Lives, Connecting Europe

French elections: by the time the EU economy revives and the migration crisis is solved extremists could take over Europe

The next 48 hours may change the European Union

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

18th European Forum on Eco-innovation live from Barcelona: What’s next for eco-labelling?

Intel, Almunia and 1 billion euros for unfair potatoes

COP21 Breaking News_03 December: Europe’s children urge leaders to commit to climate action at UN Climate Summit in Paris

No better year for the EU’s weak chain links

Can Kiev make face to mounting economic problems and social unrest?

EU and Amazon cut deal to end antitrust investigation over e-books deals

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

Fear casts again a cold, ugly shadow over Europe; Turkey sides with Russia

The European Commission cuts roaming charges. But “it’s not enough”…

A hot autumn after a cool summer for Europe

EU-US to miss 2015 deadline and even lose Germany’s support in TTIP’s darkest week yet

Can the banking union help Eurozone counter its imminent threats?

Should Europe be afraid of the developing world?

Access to ‘affordable’ medicines in India: challenges & solutions

Is Europe misjudging its abilities to endure more austerity and unemployment?

IMF – World Bank meetings: US – Germany clash instituted, anti-globalization prospects visualized

Global Citizen – Volunteer Internships

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

The EU accuses Russia of bullying Ukraine to change sides

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