© Peter Vanden Houte
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In terms of inflation, of course, a big part of downward pressure is due to the oil prices that are remaining much lower than a year ago, which automatically puts negative pressure on consumer prices. If we look at underlying inflation, it is positive but still very low – the last figure was 0.7%, and it has been grovelling around 1% for the last year or so, remaining way below the ECB's target inflation of 2%. Even if we skip out the oil prices factor, inflation is still too low. Thus, it did seem to be the reason for the ECB to do more in terms of easing, but the question is what they could do next, given the fact that interest rates are already negative and they already have the QE programme emplace. However, I think that with very low inflation figures there is no doubt that the ECB will have to do something at their next meeting in March, given the fact that inflation is not clearly shooting the targets.
Due to the accelerated impact of international markets on the Euro Zone's economic performance, the ECB is now pressured to increase monetary stimulus. Regarding fiscal side of the policies intended to help the EU economies, how efficient do you think the Juncker plan will be? Will it be large enough to help the EU to grow further or should the EU think of better ways to help them?
In terms of monetary policy acting, we are hitting the boundaries of what the monetary policy can do. We have already seen in the past that adding to what we did beforehand will probably not provoke very strong push to the European economy or to inflation at large. To some extent, it is what gains have been calling the "liquidity trap" that you can try to stimulate the economy as much as you want, but it does not react to lower interest rates anymore and that is a situation where we might be in at this moment in the Euro zone. Hence, that begs a question whether the budgetary policy will not have to take the lead now, trying to stimulate growth in the coming years. However, with the Juncker plan emplace, it does not seem to have a very big impact for the time being. It is indeed very complicated way to try to have some budgetary stimulus to avoid having to abide to the deficit and debt rules, which have been specified in the Maastricht Treaty.
Nevertheless, I think we are now at a point that probably the governments will have to invest in themselves. The Juncker plan is definitely not sufficient, as it is a very indirect way to enact any budgetary stimulus. With interest rates now being close to zero or even negative in a number of countries, the government can easily borrow to invest, and I believe this is what they should be doing now. Indeed, there is definitely a course to plead for budgetary stimulus now that monetary stimulus seems to be hitting the boundaries of what it can do. Moreover, one has to bury in mind that it is strategically difficult for Europe given the fact that it has been so upthrust with the budgetary norms and budgetary targets, and that targets all of a sudden change. This will definitely not be possible overnight, and I can assume a lot of countries will be against this, for example Germany, which has now a budget surplus, will probably not allow the other countries start to create bigger deficits again. In my opinion, the main problem is that with monetary policy becoming powerless we need budgetary policy, but it will be very hard to have a consensus and a big budgetary push in the Euro zone.