Draghi tells the EU Parliament his relaxed policies are here to stay

European Parliament, Committee on Economic and Monetary Affairs. Monetary Dialogue with Mario Draghi, President of the European Central Bank, 26/02/2018. (European Parliament Audiovisual Services).

The too slow or non existing pace of wage increases is the main reason for the non revival of inflation in Eurozone. This is what Mario Draghi told the Economic Committee of the European Parliament last Monday. He added that this is why the economic slack in the euro area may be larger than we think, despite the strength of the statistically significant robust growth rates. Let’s take one thing at a time.

This is not the first time Draghi blames the sleepy labor market for the anemic underlying inflation rate. He has even observed in the past that the reason for that is the fact the negotiations between unions and employers base their agreements for wage increases on past data of subdued inflation rates. In this why the very low wage increases usually agreed perpetuate the too slow upwards move of consumer prices. Mind you, Draghi is not a champion of workers’ rights, but still he recognizes the need for more generous wage and incomes policies in the entire euro area.

Anemic wage rises

This is why he thinks the working population should get an increased share of the strong economic growth Eurozone has achieved during the past twelve months. He told the MEPs,” the euro area economy is expanding robustly. Growth is stronger than previously expected and more evenly distributed across sectors and geographies than at any time since the financial crisis. According to the latest data, the euro area economy grew by 2.5% in 2017, reflecting strong domestic momentum in private consumption and investment”.

He observed, though, that, ” inflation has yet to show more convincing signs of a sustained upward adjustment. After lingering at levels well below 1% for three years… Annual inflation stood at 1.3% in January…Measures of underlying inflation – which we monitor for their information content concerning inflation dynamics – have remained subdued. Inflation excluding energy and food was 1% in January, and has ranged between 0.9% and 1.2% since April 2017”.

Subdued inflation

In short, what Draghi confirms here is that inflation is still far from ECB’s institutional target of close but below 2%. So he is justified to continue with the bank’s extraordinary monetary measures, which support the anemic price rises and safeguard the robust resumption of economic activities and growth. Reversing now this policy will irreparably damage the growth path of the euro area, at a time when expansion has touched all business sectors and the entire geography of Eurozone.

Draghi went even further. He informed the MEPs that “Given the uncertainty surrounding the measurement of economic slack, the true amount may be larger than estimated, which could slow down the emergence of price pressures.” He then characteristically added “This is particularly visible in the labor market.” Again and again, the President of ECB indirectly blames severe austerity in the labor market and of course holds responsible the frugal incomes policy in countries without fiscal problems like Germany. To be noted, this country has been the main political bastion of austerity within and without her boundaries.

Teutonian economics

On top of that, the Berlin Federal government and the Bundesbank (the central bank of Germany) in Frankfurt am Main have systematically opposed Draghi’s extraordinary monetary measures. The Germans do that despite the fact those measures have helped the entire Eurozone to finance its debts more cheaply and nurtured growth in the euro area.

Actually, Jens Weidmann the President of Bundesbank, is so blinded by the ‘sui generis’ frugal Teutonic economic ‘theories’, that he keeps obstructing the extraordinary ECB’s policies. He went as far as to oppose Draghi’s July 2012 famous policy line speech in London, where the latter said “we will do whatever it takes to save the euro, and believe me it will be enough”. It was the only way to save the euro and the Eurozone from total disaster. It was the critical period of 2010-2012 when Greece, Ireland, Portugal, Spain and a number of major European banks had to be bailed out with hundreds of billions of freshly printed euros.

The biased German

Yet, this biased and blindfolded German, who wants to succeed Draghi next year as head of the European Central Bank, at that critical time dared to oppose the salvation of Eurozone. If Berlin finally succeeds in making him President of ECB, the Eurozone will disintegrate in a few years, due to his systemic bias in favor of Germany. Very few euro area member states will stomach Weidmann’s Teutonic economic ‘theories’ transformed into policies. Thank God, his reputation within the economists’ cycles is very poor, exactly because of his catastrophic reading of the 2012 financial conjuncture. So, his candidacy for the helm of ECB is compromised.

Coming back to Draghi’s reading of the current economic conjuncture, he appears rather reserved about the durability and the strength of the recovery exactly because it doesn’t clearly stimulate prices. He clearly said “Moreover, given the uncertainty surrounding the measurement of economic slack, the true amount may be larger than estimated, which could slow down the emergence of price pressures”. To those who say that central banks can no longer control inflation or insist that growth cannot press prices upwards, he answered “Overall, the analysis indicates that the relationship between growth and inflation remains largely intact”.

The needs of the weak

As a result, he concluded that the entire package of ECB’s extraordinary measures worth around €2.5 trillion or more is still needed. This means continuation of net asset purchases, retention of a sizeable stock of assets, reinvestment of cash from maturing assets and forward guidance about long term zero interest rates are always needed.

All that is anathema to German ears, because those measures help the weak euro area countries and deprive the moneybags of the North from hefty returns on their immense deposits. This is exactly what Berlin wants to reverse. However, the needs of the weak are much more pressing and dangerous when overlooked, than the unsatisfied greed of the wealthy.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

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

Ending the era of dirty textiles

How Kolkata is tackling its air pollution with public transportation

Brunei’s new penal code would enshrine ‘cruel and inhuman punishments’ UN rights chief warns

VW emissions scandal: While U.S. car owners are vindicated, Europe still unable to change its laws and protect its consumers

UN rights experts call on Philippines Government to halt ‘unacceptable attacks’ on Victoria Tauli-Corpuz

Thursday’s Daily Brief: Climate crisis and food risks, fresh violence threat for millions of Syrians, calls for calm in Kashmir

Pride in practice: Equality in access to health services for the LGBT community in a third-world country

Global Trade Identity can be the cornerstone of paperless trade

A safer, more dignified journey for all migrants, tops agenda at global conference in Marrakech

National parks transformed conservation. Now we need to do the same for the ocean

Trade in fake Italian goods costs economy billions of euros

The challenges of Chinese investment in Latin America

Predatory labour taxation not an issue for the Commission

Parliament wants to suspend EU accession negotiations with Turkey

European Business Summit 2014: Sting Report, Day I

How the future of computing can make or break the AI revolution

The sun’s impact on Earth and weather celebrated, as planet marks World Meteorological Day

Medical students as the critical link to address climate change

We can save our ocean in three steps – if we act now

South Sudan: UN calls for end to inter-communal clashes, attacks against aid workers

Africa is aiming to create the world’s largest trading bloc. It won’t succeed without women

After globalization what? Europe’s long, straining shake-up post Davos wreckage

Why the world needs the youth revolution more than ever

South Sudan ‘revitalized’ peace deal must be inclusive, Security Council hears

Fertilisers/cadmium: Parliament and Council negotiators reach provisional deal

European Defence Fund on track with €525 million for Eurodrone and other joint research and industrial projects

‘Stronger’ effort must be made to cement peace deal for South Sudanese women and girls: UN Women chief

Peacekeeping chief honours Tanzanian troops in Zanzibar, a year on from deadly DR Congo attacks

The vegan economy is booming – and Big Food wants a slice of it

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

We have a chance to build the gender-equal workplaces of the future. Here’s how

How can we build a workforce for our digital future?

GSMA Announces Speakers for Mobile 360 – Russia & CIS 2018

Europe divided: 30 years on from the fall of the Berlin Wall

“No labels for entrepreneurs!”, a young business leader from Italy cries out

Cyclone Fani hits India, UN moves to protect vulnerable refugees in Bangladesh

COP21 Breaking News_03 December: UNFCCC Secretariat Launches Forest Information Hub

Want to cut greenhouse gas emissions? Look to digital technologies

In Gaza, UN envoy urges Israel, Palestinian factions to step back from brink of a war that ‘everybody will lose’

Only the Americans are unhappy with the ceasefire agreement in eastern Ukraine

Margrethe Vestager, European Commissioner for Competition, in Brussels - Berlaymont, last week. (Copyright European Union, 2017 / Source: EC - Audiovisual Service / Photo: Lukasz Kobus)

Amazon, Luxembourg and Ireland hit by EU’s latest turn of the screw over competition

‘We are nowhere closer’ to Israeli-Palestinian peace deal, than a year ago, Security Council hears

Brexit: the time has come to back the withdrawal deal

As Syria conflict enters ninth year, humanitarian crisis ‘far from over’, Security Council hears

Violence will not deter Somali people in their pursuit of peace, says UN chief, in wake of lethal attacks

National parks give a $6 trillion boost to mental health worldwide

Libyan authorities must shoulder the burden to support country’s ‘vulnerable’ south

The Chinese retail revolution is heading west

Trump denies climate change existence while Paris Agreement is not fully supported by G20 ahead of COP24

Here are 4 ways investors can influence more secure and responsible innovation

“As German Chancellor I want to be able to cope with the merger of the real and digital economy”, Angela Merkel from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

Prevent future crises and empower youth – now!

These coastal countries are sinking the fastest

Five cities short-listed to become the European Youth Capital 2017

Make the internet safer: stop using passwords

UN chief ‘alarmed’ by violations of UN-backed ceasefire in Libya

Global ageing is a challenge – and an opportunity

New rules for temporary border controls within the Schengen area

Health conditions for citizens of Yemen’s key port city ‘remain critical’ says UN agency

Will Merkel ever steer the EU migration Titanic and restore her power in Germany?

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