Meeting on July 21, the Council of Governors of the European Central Bank should present a new “anti-fragmentation” tool, intended to protect the integrity of the euro zone, abused by the outbreak of energy prices.
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War in Ukraine, Galloping Inflation, Strong shortages … While summer promises to be difficult for the European economy, now a new twist adds one more shadow to the picture: the resignation of the Italian Prime Minister Mario Draghi, July 14. Admittedly, the president of the country, Sergio Mattarella, has so far refused it. The fact remains that the departure of the one who was nicknamed the savior of the euro could throw Italy in a political crisis likely to complicate the mission of the European Central Bank (ECB) – than Mr. Draghi, irony History, chaired from 2011 to 2019.
The institution, whose governors meet on Thursday July 21, is today faced with an insoluble equation: fighting prices flambé without breaking already fragile growth. Because in recent months, inflation has taken a disturbing turn in the euro zone. In June, it culminated at 8.6 %, mainly fueled by the increase in energy prices (+41.9 %), but also food (+8.9 %) and services (+3 3 , 4 %).
The weakness of the euro, which has lost 10 % of its value against the dollar since the beginning of the year – the two currencies are now at parity -, pushes the upward prices a little more. “Everything that is imported costs more,” sums up Eric Dor, economist at Iéseg. This is very important to the differences in monetary policies between Europe and the United States. To counter inflation, the Federal Reserve (Fed) has already vigorously noted its guiding rates – they are changing today between 1.50 % and 1.75 %. The ECB’s deposit rate is still negative (−0.5 %). Result: investors abandon the old continent to seek better yields on the New York Stock Exchange, which weakens the euro a little more against the greenback.
“The worst scenarios seems In place “
To arrange anything, the economic panorama continues to darken on this side of the Atlantic, while Europe must learn in an urgent need to do without Russian gas, while the shortages of materials lead part of the industry. “The economy of the monetary union should soon enter a recession,” prediction Jack Allen-Reynolds, at Capital Economics. It judges the growth forecasts of the European Commission – 2.6 % in 2022 and 1.4 % in 2023 for the euro zone – too optimistic. “The worst scenarios seems to be set up for the ECB”, dreads Eric Dor. Namely stagflation, low growth and inflation cocktail. Even, “decline”, when the gross domestic product decreases on the background of prices.
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