LONDON—Consumer prices in the 17-member euro zone rose at the fastest pace in almost three years, even as the economy slowed sharply, leaving the European Central Bank's rate setters to make a very tough call when they meet next week. The European Union's official statistics agency Eurostat Friday said consumer prices rose by 3% in the 12 months to September, up from 2.5% in August and well above the ECB's target of just below 2%. It was the fastest rise in prices since October 2008, and under normal circumstances the response from the ECB's 23-member governing council would be an immediate increase in its key interest rate. But these aren't normal times, and other data indicate the economy is slowing sharply as confidence evaporates in the face of the currency area's deepening fiscal crisis. A measure of activity compiled by the Centre for Economic Policy Research and the Bank of Italy, also released Friday, showed the economy grew at the slowest pace since the end of the recession in August 2009. The Eurocoin reading suggests growth slowed further in the third quarter, and is consistent with other timely measures of activity and leading indicators. Taken together, they suggest the ECB may soon have to reverse its April and July rate rises. Markit Economics last week said the purchasing-managers index for the euro zone fell to 49.2 in September from 50.7 in August, indicating the economy contracted. A survey of confidence released by the European Commission on Thursday recorded a sharp fall among manufacturers, service providers and other businesses, as well as consumers. The economic-sentiment indicator fell for the seventh straight month, to 95.0 from 98.4
Access Investments-Building Awareness - European Union-ROMANIA
Sunday, October 2, 2011
LONDON—Consumer prices in the 17-member euro zone rose at the fastest pace in almost three years, even as the economy slowed sharply, leaving the European Central Bank's rate setters to make a very tough call when they meet next week. The European Union's official statistics agency Eurostat Friday said consumer prices rose by 3% in the 12 months to September, up from 2.5% in August and well above the ECB's target of just below 2%. It was the fastest rise in prices since October 2008, and under normal circumstances the response from the ECB's 23-member governing council would be an immediate increase in its key interest rate. But these aren't normal times, and other data indicate the economy is slowing sharply as confidence evaporates in the face of the currency area's deepening fiscal crisis. A measure of activity compiled by the Centre for Economic Policy Research and the Bank of Italy, also released Friday, showed the economy grew at the slowest pace since the end of the recession in August 2009. The Eurocoin reading suggests growth slowed further in the third quarter, and is consistent with other timely measures of activity and leading indicators. Taken together, they suggest the ECB may soon have to reverse its April and July rate rises. Markit Economics last week said the purchasing-managers index for the euro zone fell to 49.2 in September from 50.7 in August, indicating the economy contracted. A survey of confidence released by the European Commission on Thursday recorded a sharp fall among manufacturers, service providers and other businesses, as well as consumers. The economic-sentiment indicator fell for the seventh straight month, to 95.0 from 98.4
Subscribe to:
Post Comments (Atom)
2 comments:
The United States needs to adopt a gold standard to end Chinese predatory foreign-exchange policies, stabilize the dollar and create a level playing field in the global trade arena. For years, China has kept its currency artificially low to pump cheap exports into U.S. and other economies. Such policy, made possible since the dollar serves as the world's reserve currency and used for trade and other transactions, has kept the Chinese awash in greenbacks, which Beijing reinvests in the U.S., thus making it a creditor to the United States. A return to the gold standard, where the dollar and other currencies are valued by their weights in gold and not in relation to other currencies, would end China's ability to manipulate exchange rates as well as end Washington's dollar-printing schemes designed to pump banks full of money regardless of side-effects that include wild inflationary cycles.
At the heart of the gloom, of course, is the eurozone, with 90pc of those surveyed judging that the economy of the single currency area is getting worse. One wonders what planet the other 10pc are on.
The eurozone is clearly sliding. The European Commission's economic sentiment indicator fell to 95 in September, from 98.4 the month before, plunging at a rate not seen since the Lehman Brothers collapse. German retail sales dropped faster in August than at any time since May 2007.
The eurozone – an economy second in size only to the US – is on the brink of a double-dip recession.
This grim prognosis, though, is set against a more hideous backdrop – the danger of a "euro-quake". Greece will default. The only question is how the default is managed – indeed, if it is managed at all.
A bungled Greek payment failure will spark "contagion", as spooked creditors pull the plug on some big eurozone government, leading to non-payment of wages and benefits, serious social unrest, and a single currency break-up.
Europe's policy-making "elite" wants a fully-blown fiscal union and sees this crisis as a way to get there. It is simply not going to happen, because almost no-one outside of the Brussels salons, or the broader EU establishment, wants it. That is the fundamental truth that must be spoken, repeatedly, to power – whatever offence is now caused. Because this currency union experiment, essentially an exercise in bureaucratic megalomania and hubristic nation-building, is about to do serious damage that extends way beyond Europe.
A smaller, stronger eurozone might work. For a while. If everyone sticks to the rules. Not that they will in the long-term, of course, because local electorates always take precedence. That's how democracy works. But if the weaker, peripheral nations are now stripped-out, as their electorates want, the euro being reduced to a Franco-German rump, that would provide Europe with a 3-5 year pause for breath, allowing the global economy to recover, before the single currency is consigned, finally and irrevocably, to the dustbin of history.
The EFSF was, anyway, never the "final solution". Proposals are now on the table for the European Central Bank to "lever up its assets to buy up troubled government debt from the financial system". This is a euphemism for "quantitative easing", with mainland Europe following the US and UK down the road of massive virtual money-printing.
So the ECB will bail-out bankrupt governments which, in turn, have bailed-out bankrupt banks. Writing-down debts? Too difficult. Restructuring banks? Er, no. The outcome, of course, will be inflation - fine for some savvy investors, but ghastly for ordinary people who have worked hard, saved, and tried to provide a dignified life for their families.
Those who deny that QE is inflationary tend to be those who said the eurozone could never break-up. Do these people ever read history? Inflation was how the Western world addressed its massive sovereign debts when they were last at today's grotesque levels, after both the First and Second World Wars, albeit those debts were incurred for a rather more honorable purpose.
Inflation will be our response to today's debts too – the debts of pure indulgence. It just goes to show, for all the technological advances of the last century, how little true progress we've made.
Post a Comment