It's not clear what the European Central Bank can do about the problem, though
Mario Draghi is faced with a dilemma. All the signals from the eurozone show a gentle recovery is gaining momentum. Tills are ringing from Madrid to Berlin, while manufacturing in Portugal is beginning to show signs of life. Yet inflation is stuck at 0.8%, well below the 2% target for the currency zone.
The European Central Bank chief is under pressure to follow the Fed and the Bank of England by turning on the cheap money taps. Only a dose of quantitative easing (QE) will boost demand.
Draghi hinted strongly last month that low growth and low inflation reflected a form of economic stagnation he wanted to avoid. Action was necessary, maybe this month. He said: "Right now we have a level of inflation which is way below 2% … We know that the longer it stays at the current level, the higher will be the risk that it will not go back to 2% in any reasonable time and we don't want that."
Most likely he will ease the situation a little. Will there be a rate cut ? Probably not. And QE is out of the question. Maybe a little behind-the-scenes fiddling with ECB bond purchases to cut lenders' costs.
It's a nice problem to have, though. A better economic scenario would also avert a row brewing with the Germans over his OMT lifeboat scheme for bankrupt eurozone members. Portugal will exit its rescue scheme in May, and Greece seems solidly ring-fenced. Still, it's not clear how Draghi can, by himself, create enough demand to push up inflation.
Eurozone crisisEuropean UnionEuropean monetary unionEconomicsEuroPhillip Inmantheguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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