Brussels, July 21 - Inflation took central stage on the European Continent with European lawmakers joining the fray with calls to the European Central Bank to reconsider its fiscal policies. In a non-binding parliamentary report, Member of European Parliament suggested the ECB should reconsider its inflation ceiling, upping political pressure on the ECB while it struggles to damp rising inflation amid signs of slowing economic growth.
The ECB, which makes monetary policy for the 15 countries that share the Euro currency, has fixed the target to keep Eurozone inflation just under two percent. The draft report by Werner Langen, a German member of the EP, and Pervenche Beres, head of the EP’s Economic and Monetary Affairs Committee urged the ECB saying that level “should be examined in the context of a new age of globalization characterised by rising energy and food prices.”
Reiterating the European Parliament’s “strong commitment to the independence of the ECB,” the report supported, “the de m a - n d for a stronger public debate on the fut ure common monetary and currency policies.’’ The draft report also recommended that the ECB’s six-member Executive Board be enlarged to nine saying, “...(its) important that a variety of backgrounds be represented among executive board members.”
With no official EP jurisdiction over the ECB, the final report — which will be put to a parliamentary vote in October — will be nonbinding but the financial pundits commented that the timing of the report is sensitive as the ECB raised its key interest rate to a seven-year high of 4.25 percent earlier this month. There has been political pressure also from several Eurozone politicians suggesting that the bank’s inflation focus jeopardises economic growth.
Earlier on the eve of Eurozone finance ministers’ meeting, German Finance Minister Peer Steinbrueck said inflation is a matter of ‘deep concern’, adding a joint effort beyond the scope of the European Union is needed to safeguard citizens’ waning purchasing power.
Luxembourg Prime Minister Jean- Claude Juncker, head the Eurozone echoed the German sentiments saying, “Inflation is a serious concern, both for the ECB and Euro governments.’’ With the present Eurozone inflation rate hovering around four percent which is double the target rate, there are signs that the Eurozone economy is also slowing amid global market turmoil.
Commenting on the subject, European Monetary Affairs Commissioner Joaquin Almunia said, “The future (of inflation) depends solely on what happens on the global markets. It is anyhow possible that next year inflation could be close to the ECB target level.”
Quoted in the Finnish daily Kauppalehti last Friday, Almunia said, “Although there is a risk of stagflation and I am worried about it, I hope we can avoid the difficult situation,” adding that economic growth in the EU had weakened in the second quarter and that inflation and market uncertainty had an impact on growth.
Although the ECB did not issue official comment on the EP report, ECB President Jean-Claude Trichet said policy makers must prevent the commodity-price shock from pushing up other prices, telling Germany’s Frankfurter Allgemeine Zeitung that, “the latest rise in unit labour costs is a piece of data that we need to take into account.”
Moreover, the policy makers were not ready to yield to political pressure became evident as ECB Governing Council member Nout Wellink was cited in the Dutch weekly magazine Elsevier last Thursday as saying that slowing growth may not damp inflation. Wellink added, “if you fail to halt inflation before it increases further ... you will have high inflation at a time of low growth.”
Across the Atlantic also the inflation got the focus with the stark warning from the US Central Bank chief Ben Bernanke last week. Addressing the US Congress, Bernanke minced no words declaring that inflation could continue to threaten the economy and rocketing petrol prices gave impetus to his words as the US inflation in June hit the largest year-over-year increase since 1991. There is, however, a marked difference as the US Federal Reserve aims to promote growth and control inflation while the ECB’s single mandate is keeping prices steady.
Showing posts with label ECB. Show all posts
Showing posts with label ECB. Show all posts
Saturday, September 6, 2008
Sunday, November 25, 2007
Euro rally worries EU
ECB to take action; Merkel, Barroso express concern
Money is talk of the town and money, “The social lubricant” with a near free-fall of the US dollar, is sending ripples across the globe affecting all quarters of life. The steady fall of the American dollar against other global currencies and the meteoric rise of the nascent European currency, the Euro, is making financial pundits act and react.
Acknowledging the reemergence of tension in money markets, the European Central Bank (ECB) announced, “To counter the re-emerging risk of volatility, the ECB intends to reinforce in the upcoming main refinancing operation, as well as in the following ones for as long as it is needed and at least until after the end of the year, its policy of allocating more liquidity than the benchmark amount in main refinancing operations.” The benchmark amount is an estimate of the liquidity needed by banks to fulfil their minimum reserve requirements.
“In line with its communication of October 8th, the ECB will continue to closely monitor liquidity conditions, consistently with its aim to limit the volatility of very short term rates around the main refinancing operations minimum bid rate,” the bank in a move aimed at financial markets said.
Reiterating faith in the earlier ECB actions as “effective and flexible,” ECB president Jean- Claude Trichet said, “Looking ahead, and in line with its previous communications and actions, the ECB will continue to steer very short term interbank rates close (to) the minimum bid rate.”
Commenting on the strength of the Euro becoming a problem for some European exporters, German Chancellor Angela Merkel told N24 television on November 22 that the strong Euro and high oil prices pose a risk to the country’s economy — Europe’s largest. “We are pleased that Europe has a strong currency, but this obviously also creates problems for exports,” she said adding, “We are working on an international level to balance currency imbalances reasonably.”
European Commission President Jose Manuel Barroso echoed her sentiments last week. Speaking on the side lines of an EU-ASEAN Summit in Singapore, Barroso said, “It’s true that the very strong Euro is becoming a concern to some export sectors in some parts of the European economy.”
The European Commission this month cut its forecast for 2008 Eurozone economic growth to 2.2 percent from 2.5 percent.
In related fallout in the industry, Airbus CEO Thomas Enders said the Euro has now “crossed the pain threshold” and that the rate of the dollar’s fall “hardly leaves room for reasonable adapting.” “That is lifethreatening,” he was quoted by Der Spiegel magazine as telling the company worker’s council in Hamburg on November 22.
Although the company is expecting a record number of orders, it still must reckon with “tremendous losses,” he said. But the German economics ministry reacted the next day saying it is up to the aircraft maker Airbus and not the government to estimate the impact of the strong Euro on the company’s performance. “Only the company itself can assess how threatening such a development is for the company,” said an economics ministry spokeswoman. “Only the company can say to which degree the Euro has contributed to its development.”
Moreover, there is a flip side of the strong Euro as was pointed out by Merkel’s deputy economics minister. The rising Euro is damping the effect of rising oil prices, noted Bernd Pfaffenbach, who is also Merkel’s advisor on the Group of Eight industrial nations’ issues.
Recalling the worries during the birth of the European currency that Euro will even stay weaker than the Deutsche Mark, Pfaffenback welcome the news that China has announced plans to shift its currency reserves into Euro adding, “This shows a growth in faith in the European currency.”
Although burdened with strikes and transport chaos at home and silent directly on the rising Euro, French President Nicolas Sarkozy was about to address the currency issue during talks with Chinese leaders in Beijing.
According to media reports, a senior French official was cited as saying that Sarkozy will make proposals for an “equitable and fair” relationship among four major currencies - the US dollar, Euro, Japanese Yen and Chinese Yuan.
The common currency for the 13-nation Eurozone is hovering close to the USD 1.50 mark against the American dollar, breaking all records.
Money is talk of the town and money, “The social lubricant” with a near free-fall of the US dollar, is sending ripples across the globe affecting all quarters of life. The steady fall of the American dollar against other global currencies and the meteoric rise of the nascent European currency, the Euro, is making financial pundits act and react.
Acknowledging the reemergence of tension in money markets, the European Central Bank (ECB) announced, “To counter the re-emerging risk of volatility, the ECB intends to reinforce in the upcoming main refinancing operation, as well as in the following ones for as long as it is needed and at least until after the end of the year, its policy of allocating more liquidity than the benchmark amount in main refinancing operations.” The benchmark amount is an estimate of the liquidity needed by banks to fulfil their minimum reserve requirements.
“In line with its communication of October 8th, the ECB will continue to closely monitor liquidity conditions, consistently with its aim to limit the volatility of very short term rates around the main refinancing operations minimum bid rate,” the bank in a move aimed at financial markets said.
Reiterating faith in the earlier ECB actions as “effective and flexible,” ECB president Jean- Claude Trichet said, “Looking ahead, and in line with its previous communications and actions, the ECB will continue to steer very short term interbank rates close (to) the minimum bid rate.”
Commenting on the strength of the Euro becoming a problem for some European exporters, German Chancellor Angela Merkel told N24 television on November 22 that the strong Euro and high oil prices pose a risk to the country’s economy — Europe’s largest. “We are pleased that Europe has a strong currency, but this obviously also creates problems for exports,” she said adding, “We are working on an international level to balance currency imbalances reasonably.”
European Commission President Jose Manuel Barroso echoed her sentiments last week. Speaking on the side lines of an EU-ASEAN Summit in Singapore, Barroso said, “It’s true that the very strong Euro is becoming a concern to some export sectors in some parts of the European economy.”
The European Commission this month cut its forecast for 2008 Eurozone economic growth to 2.2 percent from 2.5 percent.
In related fallout in the industry, Airbus CEO Thomas Enders said the Euro has now “crossed the pain threshold” and that the rate of the dollar’s fall “hardly leaves room for reasonable adapting.” “That is lifethreatening,” he was quoted by Der Spiegel magazine as telling the company worker’s council in Hamburg on November 22.
Although the company is expecting a record number of orders, it still must reckon with “tremendous losses,” he said. But the German economics ministry reacted the next day saying it is up to the aircraft maker Airbus and not the government to estimate the impact of the strong Euro on the company’s performance. “Only the company itself can assess how threatening such a development is for the company,” said an economics ministry spokeswoman. “Only the company can say to which degree the Euro has contributed to its development.”
Moreover, there is a flip side of the strong Euro as was pointed out by Merkel’s deputy economics minister. The rising Euro is damping the effect of rising oil prices, noted Bernd Pfaffenbach, who is also Merkel’s advisor on the Group of Eight industrial nations’ issues.
Recalling the worries during the birth of the European currency that Euro will even stay weaker than the Deutsche Mark, Pfaffenback welcome the news that China has announced plans to shift its currency reserves into Euro adding, “This shows a growth in faith in the European currency.”
Although burdened with strikes and transport chaos at home and silent directly on the rising Euro, French President Nicolas Sarkozy was about to address the currency issue during talks with Chinese leaders in Beijing.
According to media reports, a senior French official was cited as saying that Sarkozy will make proposals for an “equitable and fair” relationship among four major currencies - the US dollar, Euro, Japanese Yen and Chinese Yuan.
The common currency for the 13-nation Eurozone is hovering close to the USD 1.50 mark against the American dollar, breaking all records.
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