Weidmann: your dreams are our nightmares. Bankruptcies and inlation (German only) on the way
Jens Weidmann, the Governor of the Bundesbank, decides to grant an interview to the German newspaper Augsbuger Algemeine , and provides us with the foreseen reality for Germany and its dreams, which, in parallel, are our nightmares.
First of all, some forecasts on inflation and the economy:
Inflation:
The inflation rate will continue to rise this year. In Germany, the value added tax has returned to its previous level (after Merkel's anti-covid stimulus, editor's note). This affects prices. Added to this is the CO2 tax, which also increases the rate of inflation . However, the forced blockade of certain consumption linked to the Crown is controversial. . Many citizens are currently unable to spend their money and inevitably save more
From today's perspective, the inflation rate according to the harmonized index of consumer prices in Germany is expected to exceed three percent by the end of the year . It will only be temporary – I have already mentioned some special effects. But one thing is clear: the inflation rate will not remain as low as it was last year in the long run.
So Germany is expected to hit 3% inflation. Not for a success of the ECB's monetary policy, which certainly cannot have had major effects on the lockdowns still existing in many parts of Europe, but for the German internal fiscal policy linked first to the temporary cut in VAT, too short and above all coinciding with the arrival of “green” taxes which should help the so-called “ecological transition”. Isn't the Ecological Transition a way to force a false and forced increase in inflation through higher costs for households and businesses?
Also because Weidmann likes taxes enough, in fact he can't wait for the so-called "German debt brake" to return, that is a policy of forced austerity, with continuous surpluses, destined to reduce the debt while maintaining the growth of incomes in Germany under very tight control. Weidmann says it clearly:
States need to reduce their debt again after the pandemic. This is why we should be examining how to make European tax rules more effective. In Europe we have decided on a common monetary policy. But states were not ready to give up their autonomy through national budgets. This creates incentives for states to take on more debt. A high level of debt makes the monetary union vulnerable and could therefore put pressure on monetary policy to keep funding costs low.
States need to reduce their debt again after the pandemic. This is why we should be examining how to make European tax rules more effective. In Europe we have decided on a common monetary policy. But states were not ready to give up their autonomy through national budgets. This creates incentives for states to take on more debt. A high level of debt makes the monetary union vulnerable and could therefore put pressure on monetary policy to keep funding costs low.
In addition to fiscal rules, capital markets must also regulate public finances. The purchase of government bonds by the ECB must therefore not undermine market discipline.
So austerity is always the first of the German wishes. Coronavirus has changed nothing at all, exactly nothing. They still propose a policy of austerity and forced containment of the debt, at the expense of growth (of others), and they wish to force this reduction through a brutal and violent market. That is why it is really important to contain him and his ideas in the ECB and in Europe.
Because his dream, and our nightmare, is that of the end of the expansionary policy of the ECB and therefore of the increase in interest rates that he, as high on the ECB board, hopes will increase:
We have long been in a phase of low inflation rates and therefore very low interest rates, but I am convinced that this cannot be continued at will. It is all the more important that the Governing Council ceases its very expansionary monetary policy in good time as soon as it is foreseeable that we will reach our target rate of inflation. Determination must not be lacking, even as financing costs for heavily indebted countries increase.
So Italy, but also all the countries of the Mediterranean area and France have a declared enemy, and he resides in Frankfurt. He is the real threat to the single currency. If his political vision wins, personally, I would not give the single currency more than 36 months to live.
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The Weidmann article : your dreams are our nightmares. Incoming bankruptcies and inlation (German only) comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/weidmann-i-suoi-sogni-sono-i-nostri-incubi-fallimenti-e-inlazione-solo-tedesca-in-arrivo/ on Fri, 12 Feb 2021 17:31:07 +0000.