As the news that the single currency bloc has finally tipped into deflation became official yesterday, economists wasted no time wading into the “mismanaged monetary and fiscal strategy” that now sees southern Europe at another hairpin bend in the road.
The Telegraph’s Ambrose Evans-Pritchard explained: “Deflationary forces have been gaining a grip on all the crisis states of the South for 18 months.” But no one appears to have been listening.
Despite the “valiant efforts” of Mario Draghi at the European Central Bank to “head off this awful moment”, vital time has been lost.
“The optimal moment for quantitative easing has passed,” Evans-Pritchard considers. “It is late in the day, even if the ECB council plucks up the courage this month to force through full-blown QE (quantitative easing: the term also dubbed by financial journalists as “electronic money printing”).
“Yields on 10-year German Bunds have already dropped to a historic low of 0.46pc. Finland is down to 0.54pc, Holland to 0.57pc and France to 0.73. Even Spain has fallen to 1.63pc.
Little can be done by compressing yields yet further, and the ECB is prohibited by treaty law from carrying out more radical action that injects money directly into the veins of the economy”.
So what will it mean – for Portugal particularly where prices, not to mention taxes, this new year are all on the increase?
Deflation is traditionally described as “the point where prices fall so far that they strangle economic growth” – thus the country faces another tipping point in a key election year.
For now, all attention is focused on the next meeting of the ECB, scheduled for January 22 (the day before the Greek elections). Draghi is expected to roll out a new “raft of measures” that may, just may, sail the troubled eurozone back to calmer waters.
But as Evans-Pritchard concludes, “there is no popular groundswell anywhere” for fiscal union. Northern creditor states have spent the past four years “methodically preventing any durable pooling of risk or any step towards” it, he maintains.
As Draghi has been hinting for weeks (see: https://stg.portugalresident.com/draghi-cranks-up-fears-over-eurozone-deflation/ https://stg.portugalresident.com/dividing-opinions-as-m%C3%A1rio-draghi-slashes-interest-rates-yet-again) “he no longer thinks the Euopean Monetary Union can work”.
By NATASHA DONN
