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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

An EU Summit without purpose

Varna (Bulgaria) awarded European Youth Capital 2017

Healthcare for refugees: a necessary symbiosis of medicine and politics

MWC 2016 LIVE: Freemium MVNO model a success, claims FreedomPop head

Germany openly seeks more advantages for its banks

Gas pipeline in the European Union. (Copyright: EU, 2012 / Source: EC - Audiovisual Service / Photo: Ferenc Isza)

EU Investment Bank approves € 1.5bn loan for Trans Adriatic Pipeline (TAP)

The third bailout agreement for Greece is a done deal amid European economies full of problems

“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

Disaster Medicine in Medical Education: the investment you just can´t afford to ignore

YO!FEST ENGAGES 8,000 YOUNG EUROPEANS IN FUTURE OF EU

Spanish and Polish voters are crying out for an imminent European change while US urge now Germany to change route

Gender Equality in Medicine: are we now so different from the Middle Ages?

Brexit talks: Today the world to hear of a predictable failure

ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

Eurozone at risk of home-made deflation and recession

France: New labour laws for more competitiveness

Technology is delivering better access to financial services. Here’s how

Is Europe ready to cooperate with the rest of the world? Can Germany change its selfish policies?

A very good morning in European markets

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

Does EURES really exist?

MWC 2016 LIVE: EC adds Brazil to partner tally

EU and UK soon to be in a post-Brexit rush over free trade agreement with Australia

MWC 2016 LIVE: Zuckerberg warns mobile industry not to ignore the unconnected

Commission: New proposal for centrally managed bank resolution

COP21 Breaking News_03 December: UNFCCC Secretariat Launches Forest Information Hub

The European Parliament rewrites the EU budget in a bright day for the Union

Currency Union might not let an independent Scotland join the EU as the “Yes” front now leads

China answers clearly to the European Commission’s investment negotiations with Taiwan

Macron’s Presidency: what the young generation’s expectations are

Dark spots on EU humanitarian aid spending

Is South Korea set to lose from its FTA with the EU?

Making money from meeting the SDGs? An overarching approach to sustainable development.

G20: Less growth, more austerity for developing countries

WEF Davos 2016 LIVE: “There is a communication issue (about China) which markets don’t like” Christine Lagarde, Managing Director of IMF stresses from Davos

EU budget: Will Germany alone manage Britain’s gap?

Crisis hit countries cut down public spending on education

The 28 EU leaders care more about fiscal orthodoxy than effectively fighting youth unemployment

UN envoy ‘encouraged’ by latest talks on avoiding ‘worst-case scenario’ in Syria’s Idlib

ECB intervenes to clean May’s and Schäuble’s mess

EU car manufacturers worry about an FTA with Japan

EU prepares for the worst case scenario as Turkey seems to be withdrawing from the migration deal

Why do overwhelming proportions of EU’s youth feel excluded?

Is Erdogan ready to tear down the bridges with Europe and the West?

The Commission offers exit from the EU budget stalemate

Sudzha gas metering station at Russian-Ukrainian border (Copyright: Gazprom, 2015 / Gazprom’s website, Media)

Gazprom starts suspending gas contracts with Ukraine as Brussels fears limited transit to Europe

Bundesbank’s President Weidmann criticises France and the EU. Credibility at risk?

Yellen and Draghi tell Trump and markets not to expedite the next crisis

MWC 2016 LIVE: Verizon boasts momentum for IoT platform

Israel @ MWC14: Israel The Start App Nation

EU to Telcos: Stop Mergers and Acquisitions but please help me urgently with 5G development

Parliament cuts own spending to facilitate agreement on EU budget

Germany to help China in trade disputes with Brussels

The Commission tells Berlin it is legally obliged to help Eurozone out of stagnation

Can Obama attract Iran close to the US sphere of influence?

The ECB must extend its money stimulus beyond 2018: Draghi reckoning

EU Council: The US airlines may freely pollute the European air

Advocate General ‘outlaws’ Data Retention Directive

How Greece was destroyed

Climate negotiations on the road to a strong Paris agreement rulebook

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 )

w

Connecting to %s