The Covid-19 pandemic may have made Europe more supportive and good, but it certainly hasn’t wiped out old tensions – and old traumas – which are now all being reflected in the ECB board. The appointment is on 10 June, when the Governing Council of the European Central Bank will announce its monetary policy decisions, before the president’s usual press conference. Christine Lagarde.
The question is this: now that we start talking about a post-Covid-19 pandemic world, what will happen to the specially anti-Covid bazooka baked last year by Lagarde & Co. or the Pandemic QE or PEPP?
Lagarde first of all reiterated how, together with the TLTRO operations, the PEPP is a main tool against the effects of the pandemic crisis, repeating recently that the recovery is still uncertain and the rise in inflation is temporary.
In conclusion, the PEPP was again armored, even if at the beginning of May, the exponent of the Governing Council Philip Lane had announced that, on the occasion of the meeting that is now imminent, the ECB would have evaluated whether increase or cut asset purchases that take place with the anti-Covid Quantitative easing.
On April 22, however, Lagarde said there had been no discussion in the board on whether to start the tapering of QE.
“It still takes a long time to be able to cross the bridge of the pandemic. The Eurozone economy is walking thanks to the help of two ‘crutches’: a fiscal and a monetary one. We have to be on solid ground before we can walk with our strength and in a sustained way ”. So Christine Lagarde had tried to reassure the markets.
Apparently cohesive ECB: Panetta also locks PEPP
The same reassurance has been relaunched in the last few hours by other authoritative sources of the ECB. In an interview with the Japanese newspaper Nikkei, the representative of the board of the central bank Fabio Panetta he stated that “the conditions we are witnessing today do not justify the reduction in the pace of purchases, and a discussion about leaving Pepp is still clearly premature.”
The same ECB communiqué from the last meeting at the end of April stated that “the Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase program (PEPP), with a total financial envelope of 1,850 billion euros, at least until the end of March 2022 and, in any case, until the critical phase linked to the coronavirus is deemed to be over “.
That said, on the Governing Council of the ECB the voice of the German hawks, which, however, has faded a lot compared to when the institution was president Mario Draghi, is making itself felt and how.
The voice is always that of the Bundesbank President Jens Weidmann, which in the past has greatly unnerved the Italians with its declarations against aid to Southern Europe. Good or bad declarations always start from the cultural fear of debt and from trauma of inflation, engraved in the psyche of the Germans after the dramatic experience of hyper-inflation that hit the country in 1923, with a daily rate that jumped to over 20%.
Now, despite the various reassurances that have come from the ECB and also from the Fed on the transitory nature of the upward trend in prices, the fear of an overheating of the economy and consequently of inflation, particularly in the United States, has definitely rekindled, especially after the publication of the thermometers represented by
The markets in the US are starting to price the hypothesis that the Fed will launch the tapering of its Quantitative easing already at the end of this year, in view of the possible first rate hike that would still be a long way off (not before 2024).
In the Eurozone, we read in the article Warnings from high-level Germans about ‘elephant in the room’, there is a “strong faction hoping that July-September pandemic QE will continue to run at the relatively high pace of $ 80 billion in second quarter purchases.” The article, which highlights the growing intolerance of the other faction, if we can say so, towards the expansive monetary policies of the ECB, continues:
“This faction generally emphasizes the weakness of the labor market and the weak prospects of inflation in Europe in 2022” in motivating the request to leave asset purchases unchanged and, therefore, “to start reducing the amount of volumes purchased monthly with the PEPP only starting in September. The group (of doves practically) presses to use the entire program budget by the end of March 2022, when the expiry of the PEPP is foreseen, perhaps even before its possible extension “.
A desire that is irritating, however, the other front, precisely, which belongs precisely to the Germany of the hawks, especially after the statements of another German exponent of the ECB board, or Isabel Schnabel, who warned that the rate of inflation in the country could jump over 3% at the end of this year (It must be said, however, that Schnabel herself stressed that the leap in inflationary pressures would be temporary and would not require any changes to the ECB’s extraordinarily accommodative monetary policy.
But nothing to do. In the middle there is also the electoral campaign in view of the federal elections in Germany on September 26th: Angela Merkel’s government is now at the end: Chancellor Merkel has decided not to reapply and to conclude a fourth term which, thanks to the Covid-19 crisis, almost certainly would not have been followed by a fifth.
The electoral campaign becomes heated, with the unknown of what will happen in Germany – and therefore in Europe and in the world – after 16 years of Merkel governments – and the ECB becomes a bone of contention.
On the one hand, there are the Greens, who are enjoying great support according to polls, and who want interest rates to remain very low in Europe, supporting ambitious ‘green economy’, social and infrastructure revitalization plans.
On the other hand, the politicians of the Merkel’s party of Christian Democrats (CDU) and also of the Social Democratic party who are opposed, presenting themselves as champions of those savers who in Germany also suffer from the impact of negative rates on current accounts.
And so, some of them recently published a memorandum in the Süddeutsche Zeitung newspaper, fearing a possible “Social explosion and political polarization” caused by the policies of the ECB. The memorandum was signed by 14 authorities, including Edmund Stoiber (CSU), former Bavarian prime minister; Peer Steinbrück (SPD), former finance minister; Franz-Christoph Zeitler, former vice president of the Bundesbank and Paul Achleitner, chairman of the supervisory board of Deutsche Bank.
Former finance minister and current president of the Bundestag Wolfgang Schäuble (CDU) – also known for his anti-Italy statements – would have been associated with the group, although not appearing among the signatories. The memorandum states that the “ultra-expansionary monetary policies” of the ECB will cause “structurally weak growth”.
Under accusation the European Union Recovery Fund itself of 750 billion euros which – reads the memorandum – leads “some member states (of the EU) to see (in the Next Generation EU) an opportunity to promote the idea of creating a common debt “, a situation that was not possible “to create at the beginning of monetary union”, and which also want to “bypass the European Stability Mechanism created for loans to be disbursed in emergencies”.
No member of the Bundesbank has signed the document, but some sources have shown that the number one Jens Weidmann he helped formulate the message.
And so it returns Germany in a hawkish version, the same one that an article in the Financial Times of quite a few years ago managed to present so well. The FT spoke precisely of Weidmann, as the emblem of a nation, Germany, which sees debt as a sin “. So much so that the word “schuld”, debt, also means “guilt”. Let alone if it appears next to the debt the threat of inflation.