Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
CHEAP OIL PUSHED eurozone price growth into negative territory in December – the first time the region has experienced deflation since the depths of the financial crisis.
The news is expected to mount even more pressure on European Central Bank (ECB) president Mario Draghi to launch radical economic-stimulus measures later this month.
Official estimates from Eurostat showed eurozone inflation was expected to be negative in December when compared to the same month in 2013, mainly due to a massive drop in energy prices.
Annual inflation was down from 0.3% in November to -0.2% for the most recent month as energy costs plunged 6.3%.
There was also a 1% drop in unprocessed food prices, with costs for both industrial goods and the broader food, alcohol and tobacco sector also flat.
It is the first time eurozone prices have slid into negative figures since October 2009.
Time for ECB to get radical
Draghi and the ECB have so far been resisting calls to unveil a quantitative easing programme – which means the bank would effectively print money to lend to European states – to revitalise flagging economies across the region.
The official lender has already cut interest rates to record lows and launched a corporate bond-buying scheme but neither move has been enough to kickstart a broad recovery.
Ireland has been one of the few eurozone economies to buck the trend and post strong GDP growth figures.
Germany has been particularly resistant to more-radical stimulus measures, however deflation poses a major risk as it is considered harder to haul in than even sky-rocketing inflation.
The fear is that consumers will stop spending because they expect prices to keep falling, putting pressure on both company profits and government tax takes, and sending economies into free fall.
Inflation well below target
Central banks generally target inflation of about 2% as being healthy for economies. In the eurozone, the figure has consistently been hovering below 1% and barely above zero in recent months.
The ECB has already been widely tipped to announce a quantitative easing plan when it meets later this month.
- Originally published at 11.21am
To embed this post, copy the code below on your site
Untill it starts to effect Germany then the ECB will do nothing more then come up with lame ass excuses.While Germany couldn’t rule Europe in ww2 there doing so now by dictating to the ECB
Yeah but they really seem to know what they are doing –
Maybe if we could get the German controlled E.U. and The German based E.C.B. along with maybe the I.M.F. to come over here and run our economy then this deflation wouldn’t occur !
Oh hang on a minute …….
That’s what Brian Cowen ………………..Noooooooooooooooooooooooooooooooo !
Spot on Gareth.
But, by the time it’s good for the Germans to do X economically it will probably be a bad idea for ourselves and several other countries.
The sooner there’s a 2-track model for currency union, or ourselves and the PIGS countries just throw our hats at it and leave, the better coz it may be working for the Germans, but I’m not sure that being the Co. Donegal of Europe in perpetuity will serve our kids in any way whatsoever.
I prefer GIPS – Doesn’t remind me of the holocaust so much …..
The day the German led E.U. started calling us Pigs was the day to leave but sure then they gave us End a and insured we would leave – then again they have the place cleaned out so they might as well let us go and they can keep Kevin Cardiff , Phil Hogan and take End and Brian and Bertie as well if they like !
The German government is dead against quantitative easing and has been lobbying against it and other measures for some time now. Their ECB Governing Council member is likely to be outvoted at the next meeting.
Also it is the eurozone as a whole that is in deflation. Individual countries have different inflation/deflation rates e.g. Ireland at 0.1% in November 2014 and the Netherlands at 1% the same month.
“The day the German led E.U. started calling us Pigs”
Pleaase do show me where the EU used the term PIGS Dermot? It was a term created by the media.
I didn’t hear them condemn it – and that is more a sad reflection on the “Piigs” countries Governments than the German one believe it or not ……
Deflation is caused by hoarders Ryan ..
Corporations hoard money , Pension funds hoard money – and the tax systems of the world are designed to pour money into these areas – and that is why there is deflation …
One fo the biggest deflationary moves in Ireland has been the continuous attack on families in the taxes – it makes it less and less worthwhile for parents to work and rthhis in turn affects childcare employment and baabysitting and restaurants etc.
Parents have to spend – single people have to save for deposits etc. – this basic social fact is devoid of bankers thinking who only care about writing loans for bonuses and not for the benefit of the books balancing and not for the shareholders – their ultimate responsibility ..
One very easy change to banking rules would be a law that makes banker’s bonuses go towards their pensions and be conditional on the loans being paid in full – this would change the attitude of banking overnight – tie the bonus to the success of the loan over time rather than the size of the loan – It could be deposited inhouse and help to balance the deposit side of the business ..
Loans are long term so bonuses should be also !
“The day the German led E.U. started calling us Pigs”
“I didn’t hear them condemn it”
Just because they didn’t condemn, doesn’t mean they can be accused of using the term…
THE ELITE THEN IF YOU PREFER rYAN – FAIR POINT THOUGH !
@Dermot “deflation is caused by hoarders” …
” one of the biggest deflationary moves in Ireland has been the attack on families in the taxes” …
“single people need to save for a deposit” (hoarding???)
Not sure what’s going on there but you should read over your musings before you post.
The really bad news is the ECB is involved…..
Do explain
“The fear is that consumers will stop spending because they expect prices to keep falling, putting pressure on both company profits and government tax takes, and sending economies into free fall.”
lamest reason ever. Europe is stuck with high debt , high taxes , rigid employment laws and other regulations. The idea that Europe is in the crapper because people aren’t going mad in Argos or Lild is stupid and taking away focus from where it should be
Well said.
Innocent question – And where should the focus be?
back to the government and central banks, in as much as it matters, if Im not spending 3 grand on a holiday , its fear of the future, not that I think it will be cheaper next year. European states are killing their economies with higher taxes over the last few years
“Many years ago, falling prices were a sign of improved efficiency and expanding wealth, and of widening consumer choice. Thanks to the spread of electricity and other such wonders in the final quarter of the 19th century, prices dwindled year by year at a rate of 1.5% to 2% per year. People didn’t call it deflation – they called it progress. Similarly, in the 1920’s there were advances in production techniques. The prices didn’t decline and didn’t rise. They were stable. Looking back on the 20’s from the vantage point of the 30’s, many people wondered why prices had not fallen. They concluded that it was because the central banks were emitting too much credit, and that credit had served to inflate asset values. It had also pushed the world into a very imbalanced credit and monetary situation towards the close of the 20’s.
Fast forward many generations and here we are today with a world-wide labor market linked through digital technology. We are the beneficiaries of Moore’s law. Nearly every day we see new, wonderful, labor-enhancing machinery coming into the workplace – including new software. And yet, prices don’t fall. They tend to rise, albeit by 1% or 2% per year. Central banks seem to want more than that. You do wonder – I wonder – what would be wrong with what Wall Mart calls ‘everyday low and lower prices.’ People seem to rather relish that – certainly when shopping on the weekends. Central banks want no part of it.”
James Grant
Deflation is not good for corporations, so now the EU will pursue quantative easing. This will make are money worth less. They are worried that we won’t spend, so they are going to make a money worth less therefore forcing us to spend.
Nail -> head
The result of an overreaction or bankrupting the people in some euro zone country’s to create a new poverty class.
No harm. Hope it reaches Ireland. Sick of paying through the nose for everything
You don’t know what youre talking about !
Spot on john
They could make a start by having the same mortage rates across the eurozone..we are paying about 2% more than the euro average..imagine the boost that would give..and the amount of people it would help
Personally I think the banking system is fu#ked and out dated.through taxation people have less money and you know the saying no Mon no fun.this is because we bail out banks and bondholders.how tick can the Irish be.not a decent job created out of this but sure all is fine in the banna republic.
So enlighten us with wisdom, how should the banking system operate then?
Do you want to cancel taxes? Who will pay for all the State expenditure? Do you think the bed situation in Beaumont hospital will be any better if nobody paid taxes?
Do you want to let banks fail? How will you buy goods, receive wages, pay your mortgage? How will the company you work for, if any, sell their goods, buy supplies, get financing for expansion?
Do you realise how many high-skilled, well paid jobs would go along with the banks?
Tanneries once provided well paying jobs. This was not a compelling argument to preserve an obsolete industry either.
” Technology has leapfrogged the banking sector, rendering it as obsolete as buggy whips. So why are we devoting 9% of our economy to an obsolete parasite? Financial sector profits now total a staggering 4.5% of GDP (gross domestic product), while the expenses generated by financial churning account for another 4.5% of the economy.
Software and existing non-Wall Street/too-big-to-fail institutions could replace the entire Wall Street/banking sector and drop costs to .5% of GDP, saving us 8+% of our GDP ($1.25 trillion) that is currently siphoned off by parasitic middlemen. The banking sector is Exhibit A in the Middleman-Skimming Economy (February 11, 2014).”
Charles Hugh-Smith
Why should the banks have the right to create money out of nothing? This money could go into businesses creating jobs instead of just into property. Bitcoin is part of the answer. And lots of new monetary systems been created right now.
The start of the. beginning of the end of the EU fiasco, cant come wuick enough
Is QE loaning money to the rich at crazy interest or what’s the craic? How is it distributed to who exactly? How is it so different from printing money? I just don’t get it.
Are they just taking companies debt and making the rest of the economy pay?
Essentially the ECB will electronically create more money and use that to buy financial assets such as Euro-zone Government Bonds.The amount of goods for sale in the economy will remain at a constant rate, however the amount of money available to buy these goods will increase and this will push inflation back up.
Would this not be highly unsustainable in the longer term? Is QE a relatively new (last 40-50 yrs) and how tried and tested of a method is it? Just seems a never ending cycle
It’s still being practiced in the us. It drives bond prices up, therefore investors flock to “cheaper” equities. This then drives up stock prices. Hence the slight bubble now in us equities.
QE does not put new money anywhere near the real economy.
It merely provides for greater liquidity in Financial Assets markets. The (erroneous) rationale is that it encourages banks to lend more to consumers or businesses for investment. But banks create money out of thin air when making loans, so QE has no effect. But it does inflate certain Financial markets as banks have more liquidity to speculate with.
Some mainstream economists have discovered their brains and are advocating – the frankly obvious – that ‘QE for the people’, where newly created money is simply spent into the economy, or given, gratis, to citizens to spend, would be far more effective. Notably John Muellbauer of Oxford University…
At least after 6yrs of gifting money to banks, tax breaks for Corporations and all the rest of the supply side neo liberal bollox, complete with blaming the victims of unemployment and slashed wages, the reality that the problem is demand side – f**d over by needless Austerity, is getting harder for the self-serving top few percent to deny.
Yes they’re printing money but most of the time they just press a button and create billions out of thin air. It’s called counterfeiting. You then loan this newly created money to puppet governments at interest so they can pay for their services (which receive less funding each year ) recapitalise banks, line politicians pockets and laugh at the parasitic public who are far too brainwashed by social media, celeb culture and tv to ever give a crap. We deserve exactly what we’re getting for our inaction
It will cause a fall in the euro and make goods in Europe more expensive for us but our exports will be cheaper.
It’s the reason the pound was so cheap a few years ago.
A good start would be the ECB giving the Irish people back the 60billion demanded from a weak and incompetent govt with the Sept 29rh 2008 bank guarantee followed by the 2010 troika mafia style shakedown and while they are at it put back the 17 billion we had saved in our pension reserve fund.
Traditional Quantitative Easing has already been tried to the tune of €1.4 trillion in the Eurozone and has failed to stimulate the domestic economies and stave off deflation.
QE increases the amount of central bank reserves available to the commercial banks on the mistaken premise that bank lending to business and individuals is reserve constrained. It isn’t. The banks lend money to anyone they believe will pay them back and then seek the necessary reserves after the fact and which the central bank is effectively obliged to provide. Traditional QE is largely ineffective for this reason. Commercial banks always act pro cyclically and so reduce lending in a recession as the risk of default increases.
A much more effective stimulus would see money placed directly into the hands of the ordinary citizens which will be spent in the local economy to stimulate growth and jobs.
For example, here’s an Oxford economics professor calling for the ECB to provide every worker and pensioner in the Eurozone with a payment of €500 in order to reflate the domestic economies.
http://www.project-syndicate.org/commentary/helicopter-drops-eurozone-deflation-by-john-muellbauer-2014-11
An even better and more sustainable way to create full employment on a permanent basis would be to implement a Job Guarantee. The sovereign state with a floating currency such as the U.S. Japan, U.K, Australia etc faces no financial constraints in its own currency. The state may face real resource limitations (e.g. energy) but not a financial constraint as it can never be insolvent in its own currency as it issues that currency. Neither is inflation a concern in the current recession where vast resources (including labour) are lying idle. The only ingredient missing are the keyboard strokes to create the fiat currency to put those resources to productive work and increase the real wealth of goods and services to be shared by us all.
This ability to keyboard money into existence at will should be utilized to implement macro economic policy which benefits the vast majority of the citizens (labour) as opposed to current policy which enriches the minority (capital owners) . The primary plank of this policy should be the Job Guarantee (JG) where the state/government acts as the employer of last resort who finance the scheme using their ability to create the domestic currency at will to pay the wages of the JG participants. In a Eurozone context, it would be the ECB who would finance member state spending to implement their national JG schemes.
The JG is a strictly voluntary, transitional employment, available to any and all unemployed, or underemployed, who wish to avail of it. It does not replace existing social welfare provisions but operates alongside them. The JG employment is intended to be transitional, its numbers fluctuating in an automatic counter cyclical fashion so rising during recession and falling as the economy improves. The jobs are transitional to ‘normal’ employment in the private or public sector, and must not compete with ordinary employment. So, the JG jobs need to be exclusively in the Community, Voluntary and Charity sectors and at full time (40) hours or any fraction thereof which the worker chooses. The JG wage must be fixed at the minimum wage which is determined by the lowest acceptable standard of living. This creates an effective wage floor for labour. Capital owners must pay more than JG rates and/or offer better benefits etc to convince people to work for them.
The Government would supplement the JG earnings with a wide range of social wage expenditures, including adequate levels of public education, health, child care etc. The JG would be integrated into a coherent training framework to allow workers (by their own choice) to choose a variety of training paths while still working in the JG. However, if they chose not to undertake further training no pressure would be placed upon them.
The JG also fulfills a critical macro economic function, the maintenance of aggregate demand and spending in the economy. It’s always aggregate demand spending that ultimately creates and maintains jobs. Someone’s spending is always someone else’s job and income as the macro economy is circular. It is the aggregate spending of everyone in the economy, public, private, individuals and businesses that maintains and creates employment. When aggregate demand is either too little (unemployment high), or too much (inflation rising), it is only the government (central bank) that can act counter cyclically to make the appropriate adjustment. The government can remove money from the economy via taxation in order to combat inflation or pump stimulus spending into the system to counteract unemployment. Another key element is that full employment maximizes the production of real wealth (goods & services) to be shared by us all and so drives up living standards for everyone. The jobs benefit the individual and society as a whole.
The Job Guarantee proposal and the correct understanding of how fiat monetary systems and the macro economy operate has been developed by the Modern Monetary (MMT) School of economics. The MMT basics are available here if people are interested.
http://modernmoney.wordpress.com/index/
Exactly so Coddler :)
But because we don’t have public officials that actually represent the interests of the majority of citizens – meaningful democracy – I fear we’ll need to fix this issue first before any sane Economics policy is considered.
Just because he’s an Oxford University economist doesn’t mean whatever he says is gospel. How will giving 500 euro to everyone reflate the economy? You have to be completely out of touch with modern economics to believe that. They tried that in the U.S. in the 2000s to see what would happen. They gave everyone in the country some unconditional money via a tax rebate. Most people just lodged it into their bank accounts and forgot about it. The effect on consumption in the economy was insignificant.
So many copypasta warriors lately.
Clueless drivel from you ‘Pepperoni’.
A tax break says absolutely nothing about what else was going on in the economy or with public policy.
The present output gap in percent terms in Europe is both deeper and longer than that of the 30s Great Depression that followed 1929′s Finance Pyramid bust.
You obviously have no clue either how the majority of people live if you thnk €500 wouldn’t be fairly quickly spent by the vast majority in the present circumstances.
But you failed to notice that this was anyway just a crude device to illustrate the fact that money issuance, free gratis, is a perfectly reasonable policy consideration for the present situation of chronic lack of aggregate demand. The point being that spending money directly into the economy would be a far better policy choice (for the majority) than simply giving money to banks to play games with asset markets etc.
There would be much better ways of targetting the spending of new money into the economy – fixing crumbling infrastructure and public services by hiring more staff and reducing unemployment would be a far better idea in most countries. And giving money back to all those most vulnerable who’ve borne the worst of the Austerity cuts. (I think we can safely assume that isn’t you Pepperoni, eh?, for whom €500 is clearly a trivial sum..)
And an MMT style Job Guarantee itself would be most useful, as Coddler describes.
Ah Coddler there you are, I was getting worried we hadn’t seen that particular cutnpaste in while. Glad to see you are okay!
Since only one in a million are actually aware of our fiscal demise hopefully this vid might help wake ppl up to the corrupt system we are trapped in.
http://themindunleashed.org/2014/01/biggest-scam-history-mankind-debt-ceiling-truth.html
The Netherlands are now stockpiling gold and silver again.Last November they started to secretly repatriated their gold reserves from New York London and Canada because they don’t trust the Euro currency anymore. The German government is trying to do the same but were not as fast as the Dutch in repatriating theirs fast enough. I wonder if other countries in the eu are doing the same.
This is ww3. A financial war where Germany pumped money into other European countries just to wait for the fun to stop then tighten the leash!
Eu laws brought in for chemical disposal,renewable technologies, low co2 producing vehicles, asbestos removal mainly produced in guess where? Germany! Keeping BMW Audi VW Mercedes Bosch Siemens ABB and dozens more companies topping factory orders while the rest of Europe chokes.
Ireland has been one of the few eurozone economies to buck the trend and post strong GDP growth figures.
Thanks to a stronger Britain and US economies in 2014. Your biggest trading partners.
Is rabbiting on about economic issues in an attempt to prove your vast intellect to people who hide behind anonymous avatars the latest hipster thing to do ? If so I want to get off this ride.
I’m just loving the stability.
The EU and ECB have not helped and will not help Ireland Inc in the future.
We, the innocent Irish Taxpayers are now forced to pay huge taxes to enable our elected Government mind the Politicians, the Builders and the Developers many of whom are receiving big salaries and bonuses from NAMA!
Enda does not see the “big picture”! Or does he?
A strange world!
have your say