NEWS
MAGAZINE
Explained: Europe caught in highest inflation in
nearly 30 years
6 DEC 2021
A
record-high inflation rate of 4.9 percent could blight economic recovery across
the 19-nation Eurozone, with experts predicting it could rise even higher with
a new coronavirus variant forcing governments to implement fresh travel and
trade restrictions.
The number
is the highest since 1997 when the European Union started collecting data in
preparation for the launch of the Euro in 1999. More significantly, it’s at a
29-year-old high in Germany, historically one of the best-performing economies
in the block.
High energy
prices have been cited as the main cause for the spike in inflation, which has
also led to social tensions in several parts of Europe.
A European
Central Bank breakdown of data by country shows Lithuania at the top of the
pile with a staggering 9.3 percent inflation, followed by Estonia with 8.4,
Belgium with 7.1 and Germany with six. On the lower side, Spain’s inflation
stood at 5.6 percent and France 3.4 percent.
The
worrying data comes amid a wave of violent protests in most European countries
against new closure measures imposed by countries to confront the latest
mutation of the coronavirus named Omicron. The protests, which have clear
social and economic roots, could be exacerbated further if governments move
towards tightening the screws on the purchasing power of European citizens.
European
experts expect inflation rates to continue to rise over the coming months,
contrary to the European Bank's previous assertion that the high inflation
matter is a “passing cloud”. Eric Dorr, a French economist, told the French
daily Le Monde: “Many elements tell us the high rates of inflation are not
temporary.”
French
economist Matthew Blanc attributed this spike to the rise in fuel prices,
explaining that "more than half of the price hikes in France are due to
the rise in energy prices, and they contribute to our reaching record levels
faster than expected". Data from the European Union Statistics Office
Eurostat also show that the rise in inflation was driven by high energy prices,
besides tax increases and growing price pressures as a result of supply
bottlenecks that limit industrial production, especially in the automobile
industry.
On Monday,
Spanish Central Bank Governor Pablo Hernandez de Cos warned against any
"premature withdrawal of monetary stimulus", coinciding with the
publication of the European Commission's results of its survey, which showed
that confidence in the economic conditions in the Eurozone declined last
November under pressure from deteriorating confidence in the economy.
But US
Federal Reserve Chair Jerome Powell struck a contrary note, saying it was time
to abandon the term "transitory" when describing price growth,
opening the door to a faster withdrawal of monetary stimulus.
An
explosion of protests?
Observers
say the streets of these countries will likely witness new protests in addition
to those they have been experiencing over the past few weeks, mainly against
the imposition of new precautionary measures.
In France,
for example, violent protests erupted in the islands of Guadeloupe and
Martinique against the imposition of a "health passport" on workers
in the health and social services sectors. Under the new mandate, healthcare
workers are required to carry a health pass, or vaccine passport, for access to
public buildings, including restaurants, cafes and libraries. Distrust of the
French government runs deep in Guadeloupe and Martinique, where rampant use of
the pesticide chlordecone in banana plantations has been officially established
as the cause of prostate cancer in over 90 percent of the adult population.
In Germany,
the powerful workers’ unions are demanding an increase in salaries due to the
weakening of purchasing power caused by inflation. A request that the
government answered with a slight salary hike of 0.9 percent, which the French
economist Eric Dore does not consider capable of ending the issue. He does not
imagine that “the weakening of purchasing power caused by inflation will pass
without new demands for an increase in salaries”.
This is in
addition to the possibility that these economic conditions will contribute to
reviving the waves of protests that the world, and Europe in particular, has
known throughout 2019. Belgian sociologist Geoffrey Bleiers mentions in his
study “The pandemic as a battlefield” that “the health pandemic has devoted the
social problems that were the subject of the protests of the period prior to
their occurrence,” and that “these protests can return strongly in the
post-general closure stage”.
In the same
context, the Carnegie Institution predicted in a study published last year:
“With the painful economic effects caused by the pandemic, and exposing the
great imbalance in governance, the area of popular anger began to escalate,
which will be expressed in large-scale protests that will occur in the months
following the lifting of precautionary measures.”
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