Prime rate to remain low: has the ECB miscalculated?
In contrast to the US Federal Reserve, which is raising interest rates, the ECB is sticking to its zero interest policy for the time being. ECB chief Christine Lagarde reiterated on Thursday that the current high inflation levels were a temporary phenomenon. Instead, the ECB's Governing Council announced that it will discontinue its Pandemic Emergency Purchase Programme (PEPP) at the end of March. Many commentators take a sceptical view of the decisions.
A risky gamble
The ECB doesn't even know the exact cause of the inflation, Les Echos writes in dismay:
“Some believe energy is the key factor. ... Others see more structural causes: the exit of millions of workers from the labour market, the global decline in the working population, the continuous rise in energy prices due to the ecological transition. Until the ECB knows more, it will just be playing for time. It can maintain its expansive policy for a short period and ensure that over-indebted states remain solvent. ... However, it's a risky gamble to put the sustainability of public finances above the purchasing power of Europeans.”
Independence just a myth
Only the struggling economies of certain Eurozone states can explain why the Fed and the ECB are reacting differently to inflation, Die Presse comments:
“The central bank's independence from the political interests and needs of the Eurozone member states exists only on paper. Economists have been pointing out for a long time that the ECB not only uses its official inflation target as a benchmark but also strives to make the debt policy of many euro countries as tolerable as possible. ... The longer the policy of cheap money is pursued, the more difficult it will be to end it.”
ECB must go its own way
Handelsblatt explains why the Fed is not a good model for the ECB:
“There are three closely related reasons. Firstly, the Fed has already allowed much more inflation than the ECB. ... Secondly, the US government has simultaneously stimulated the economy with debt-financed high spending programmes. ... In Europe, fiscal policymakers have been much more restrained. Thirdly and perhaps most importantly, in the US, the wage-price spiral is already having an impact, with both factors reinforcing each other. This is not happening yet in the Eurozone. ... Taking all three reasons together, it becomes clear that the ECB must go its own way - which is what it is doing.”
Higher interest rates are inevitable
The Daily Telegraph welcomes the fact that the British central bank raised its interest rate to 0.25 percent yesterday:
“Households, companies and the state need to remember that the laws of economic scarcity have not been abolished. All must eventually live within their means. The era of ever cheaper money is coming to an end. Central banks in Britain and across the world are going to have to keep increasing rates, regardless of the state of the economy, to stave off rocketing prices and overheating housing markets. The Bank of England was right to belatedly begin the process of increasing interest rates.”
Use this chance for reforms!
El Mundo says Spain should follow Italy's example and restructure its economy now:
“Spain is the Eurozone economy that has been hit hardest by the pandemic and that is taking longest to recover. ... Other heavily indebted countries - such as Italy, which launched an ambitious reform plan under Draghi's leadership - have long since reacted. The Sánchez coalition, however, is putting all the emphasis on spending without even having agreed on any comprehensive reforms: instead it is advocating a labour or pension reform that goes in the opposite direction of what Brussels expects. We are losing precious time. If orthodoxy returns, the government will not be able to say that no one could have known.”