quarta-feira, 1 de fevereiro de 2017
ECB has an inflation problem … called Germany
ECB has an inflation problem … called Germany
With prices rising in the eurozone, critics of Mario Draghi’s easy-money policy are out in force.
By JOHANNA TREECK 2/1/17, 4:30 AM CET
FRANKFURT — The eurozone has reached its inflation target for the first time in four years, but European Central Bank chief Mario Draghi has no time to rest on his laurels: He must now brace for renewed attacks on his easy-money policy in Germany.
Overall inflation for the 19 countries that use the euro in January came in at a preliminary 1.8 percent — within a whisper of the ECB’s official target of “below, but close to, 2 percent,” but core inflation, which strips out volatile food and energy prices, was unchanged from December at 0.9 percent, making any immediate change in policy unlikely.
However, with German elections looming this September, and top-selling tabloid Bild featuring a “horror curve” showing that despite the spike in inflation — which was even higher in Germany, at 1.9 percent in January — savers are still earning nothing thanks to the policy of negative rates to spur spending elsewhere in the eurozone, Draghi’s problems are more political than economic.
“Someone has to put a stop to Draghi,” said Jörg Meuthen from the far-right, Euroskeptic Alternative for Germany (AfD), which has high hopes of entering the Bundestag (lower house of parliament) for the first time in September. The party is keen to play on the collective German memory of hyperinflation in the first decades of the 20th century.
Other inflation hawks, including mainstream figure like Bavarian Finance Minister Markus Söder, are frustrated with Draghi’s insistence that he cannot tailor monetary policy for the eurozone to the needs of the Germany economy, which is growing much more robustly than neighboring countries who still need the ECB’s support.
With Euroskeptic populists challenging the established order in elections this year in Germany, France and the Netherlands, the ECB will come under increasing pressure to explain why it is doing what it’s doing, said Anatoli Annenkov, economist at Société Générale. While he assumes a slow recovery in core inflation, “we had years and years of downside surprises and now that it is going up, we might also see upside surprises,” he said.
Beyond Brexit and fears of protectionist policies from the new U.S. administration, the ECB is bracing for internal pressure from the largest economy in the eurozone.
In his most recent press conference, Draghi attempted to project unity among the ECB’s governing council in support of the €2.3 trillion bond-buying program (“quantitative easing,” or QE in central bank parlance) designed to stimulate the eurozone economy.
But that façade crumbled just days later when German executive board member Sabine Lautenschläger suggested it might be time to bring the policy to an end. “All preconditions for a stable rise in inflation exist. I am thus optimistic that we can soon turn to the question of an exit,” she said in a speech last week.
Her former boss, Bundesbank President Jens Weidmann, has also signaled that the ECB should let economic data — rather than its previous commitment to keeping quantitative easing running until the end of 2017 — dictate its policy in the coming months.
If economic forecasts from the ECB’s own staff point to higher growth and inflation, hawkish pressure from the Germans on the governing council will almost certainly increase.
Waiting for Godot
Such a spat on the ECB’s governing council could harm German Chancellor Angela Merkel’s prospects of winning a fourth term in September’s elections, by putting her in the awkward position of either trying to retain her credentials as a “good European” by refraining from pressuring the ECB — or doing an about-face to compete for angry savers’ votes.
Merkel, speaking in Stockholm on Tuesday, said it was beyond her powers to get the ECB to change course: “We won’t exercise any influence over the European Central Bank, so I can’t and I don’t want to change the situation as it is now.”
Although he understands German political dynamics and the importance of keeping Berlin onside, Draghi has been steadfast in insisting that his mandate is to look after the eurozone as a whole, including debt-ridden southern European economies like Italy and Portugal for whom the sudden withdrawal of quantitative easing could prove premature and dangerous.
“Waiting for higher interest rates may soon appear like waiting for Godot,” the influential conservative paper Frankfurter Allgemeine Zeitung lamented Tuesday. “The ECB has become hostage of indebted countries.”
Carsten Brzeski, an economist at ING, said the ECB has nothing to gain from an increasingly rancorous debate about its monetary policy. It should be relatively easy to get a broad majority within the ECB to announce this summer a gradual “tapering” of the stimulus policies starting in January next year, which would be a “face-saving compromise.”
“However, by starting a permanent public mud fight, where actually no fight is needed, the ECB’s reputation is likely to suffer,” said Brzeski.