Euro: why we talk about tapering and why this will not happen …
Inflation figures in the euro area in August were released today on a forecast basis. Consumer price inflation in the Eurozone is expected to accelerate to 3.0 percent year-on-year in August 2021, from 2.2 percent the previous month and well above market expectations of 2.7 percent, according to a preliminary estimate. This would correspond to the highest inflation rate since November 2011, which promptly triggered some monetary policy discussion on the board.
And in fact Holzmann, a member of the board in charge of the Austrian BC, immediately took the opportunity to ask for a tapering, that is a controlled end, of the stimulus policy, and this was enough to reduce the yield of ten-year German Bunds and to appreciate the euro on the dollar. In reality, Holzmann himself said he expected a reduction in inflation in the last quarter. However, his exit was immediately opposed by the Finnish CB, which stated that no changes in monetary policy are to be expected.
After all, how can this instrument change when there is a clear dichotomy in the Eurozone. We have countries like Germany which has an inflation of 3.9%, but we have France which does not even reach 2%.
We have Greece at 1.4%
Italy very little above 2%
Portugal around 1.5%. What do we do with monetary tightening policies for these countries, to send inflation back to zero? Not only that, but even Finland and the Netherlands are under 2%. In Europe there is an inflation problem, yes, but it's all German. In reality, excluding Germany, we would have inflation well below 3%.
The fragility of the euro system, made up of wagons that each go at their own speed, makes a restrictive monetary policy difficult. Taking up the metaphor of the train, you go at the speed of the slowest wagon, not the fastest one and if the engine accelerates in deflation, it risks breaking the train, that is, it risks destroying the euro itself. That's why, despite the Germans, there will be no “Tapering” anytime soon.
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The Euro article : why we talk about tapering and why this cannot be… comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/euro-perche-si-parla-di-tapering-e-perche-questo-non-ci-potra-essere/ on Tue, 31 Aug 2021 13:12:45 +0000.