German hawks begin to resist eurozone inflationary threat

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His allies are expected to include Austrian central bank chief Robert Holzmann, lining up against doves like Italy’s Fabio Panetta, an ECB board member who warns that too rapid a cut in stimulus could just require more action later.

Carsten Brzeski, chief economist at ING, says there is “a growing debate” in Frankfurt. He adds: “I think [the ECB] managed to keep that under the rug at the June meeting, but now that we are coming out of the pandemic. we should clearly see the economy rebounding very strongly.

Financial markets are far less worried than Weidmann, with longer-term indicators suggesting inflation well below the ECB’s “near 2pc” target for the next five to ten years. But the growing assertion of Teutonics on the issue is accompanied by renewed fiscal hawkishness from politicians.

Laschet’s manifesto promises a return to Europe’s Stability and Growth Pact, limiting deficits to 3% and debt to 60% of GDP – totally unrealistic in the post-Covid world. Social Democratic challenger Olaf Scholz, Merkel’s finance minister, also ruled out a relaxation of the rules as well as any repetition of the Stimulus Fund.

This position will not fail to annoy Italian Prime Minister Mario Draghi. But German politicians, with an eye on the September poll, cannot afford to appear weak. The German electorate loves to hear their politicians “promise to be really tough on spending and run a tight ship,” according to Andrew Kenningham of Capital Economics.

He adds: “There are significant risks that they are trying to reintroduce some kind of fairly hard version of fiscal rules for the euro area… which could be hard on Spain, Italy, Greece and Portugal, where it will take longer to come back from the pandemic. “



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