The ECB wants to slow down growth even at the cost of going against the states
European Central Bank (ECB) President Christine Lagarde warned on Friday (2 December) that the fiscal policies of some European governments could lead to excess demand and that fiscal and monetary policies must work in sync for sustainable economic growth and balanced.
“Fiscal policies that create excess demand in a supply-constrained economy could force monetary policy tightening more than would otherwise be necessary,” the Commissioner said at a conference hosted by the Bank of Thailand and the Bank for International Settlements in Bangkok.
"Unfortunately, at the moment, at least some of the fiscal measures that we are analyzing from many European governments – and in particular from the eurozone – go in the direction of the latter category", said the commissioner, referring to measures that could trigger a excess demand.
The European Commission expects the eurozone economy to contract in the fourth quarter of 2022 and the first three months of 2023, due to soaring energy prices and rising interest rates, which undermine spending, the lending power and trust.
“We need more investment and structural reforms to remove supply constraints and ensure that potential output is not affected by changes in the global economy. And that's a big question and uncertainty that we have,” Lagarde said.
"And in a world where external demand is more uncertain, we will also need to strengthen domestic supply and demand through higher productivity growth."
With inflation five times higher than its 2% target, the ECB has raised interest rates this year at the fastest pace on record. More hikes are still likely in the coming months, as price growth will take years to tame.
The ECB's bank deposit rate was raised by 200 basis points to 1.5% in three months.
“What we as central bankers need to do is deliver monetary policy that anchors expectations… We need to signal to the public, observers and commentators that, under all scenarios, inflation will return to our medium-term target in a timely manner,” said the president of the ECB.
Perfect, so Laagarde wants to do what has been attempted for Italy in the last 30 years, at least verbally: reduce demand with austerity policies and increase productivity. A bankruptcy policy for Italy that will be bankruptcy for the whole of Europe. We cannot ignore the fundamental laws of production, and above all Kaldor's second law, which establishes a direct relationship between production volumes and productivity, a relationship proven by empirical analyses. Moreover, it is obvious that if 3 million pairs of shoes are produced, labor productivity is much higher than when only one million is produced, and this due to a series of factors from economies of scale to the creation of industrial districts to specialization and development of know-how. Instead the ECB, in words, makes these declarations, but, in reality, consciously, will achieve much more, namely the recession, the simple drop in demand, and therefore in domestic consumption. He just doesn't have the courage to say it openly.
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The article The ECB wants to slow down growth even at the cost of going against the states comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bce-vuole-rallentare-la-crescita-anche-a-costo-di-andare-contro-gli-stati/ on Sun, 04 Dec 2022 08:00:42 +0000.