the ECB reports that the European economy is fragile and weak. Probable reduction in rates?
First the official press release then the comment
According to the November 2023 Financial Stability Review, published today by the European Central Bank (ECB), the outlook for financial stability in the euro area remains fragile, as more restrictive financial conditions are increasingly spreading to the real economy in a context of weak growth, high inflation and increased geopolitical tensions.
“The weak economic outlook together with the consequences of high inflation are testing the ability of people, businesses and governments to service their debt,” said ECB Vice President Luis de Guindos. “It is critical that we remain vigilant as the economy transitions to an environment of higher interest rates coupled with growing uncertainties and geopolitical tensions.”
Financial markets and non-bank financial institutions remain highly sensitive to further adverse developments and their vulnerabilities could be exposed to downside surprises in economic conditions. At the same time, investment funds and other non-bank financial institutions remain vulnerable to liquidity, credit and leverage risks. This highlights the need to strengthen their resilience from a macroprudential perspective.
What does all this mean? That the ECB is starting to understand that the economic and financial situation caused by the rise in rates and the famous "ambitious objectives" of the Commission is going badly, turning south, and that therefore a crisis is upon us and this will involve the banking system.
This is the "Fragility" and "Sensitivity of the markets" that are highlighted by this communication. It comes after the Karlsruhe Constitutional Court gave a sharp cut to hidden German public spending and the use of extra-budgetary "Special Funds". A further push towards restriction in fiscal policy which will make economic growth even weaker.
At this point, further monetary policy restrictions are not to be expected, also in light of the latest inflation data. It is not impossible that we could even see a softening, over the next six months, of the ECB's policy on rates and the financing of the banking system, provided that inflation does not show sudden flare-ups.
Will all this help the European economy grow? No, it won't help , because at the basis of everything there is the absence of a coherent fiscal and industrial policy, all due to the cumbersome "Economic Stability" rules imposed by the European treaties, which, among other things, will become active again from January 1st, and by the bureaucratic monster that now chains European countries .
The NextgenEU? A fake fund, which will do nothing practical for economic growth. Pure smoke and mirrors.
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The article the ECB reports that the European economy is fragile and weak. Probable reduction in rates? comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/bce-economia-fragile-e-debole-ribasso-tassi/ on Wed, 22 Nov 2023 11:21:08 +0000.