European Central Bank (ECB) President Christine Lagarde has ruled out a recession in the euro zone as a whole in 2023 and sees Spain as “better off” than the rest of the community’s economy. In an interview given on the Antena 3 program “Espejo Público”, Lagarde emphasized that the weak point of our country is unemployment. But he noted that in terms of inflation and GDP growth, the data in Spain is more positive and that even a “technical recession” (two consecutive quarters of declining activity) will be avoided, which could affect Germany and Italy.
The economy will continue to struggle, despite the institution’s president admitting that interest rate hikes are aimed at hurting household consumption and companies’ investment opportunities. Because, as he insisted, cooling the economy is “the tool we have” to fight rising prices.
As part of this strategy, Lagarde reinforced the commitment she made in early February to raise the “price” of official money by another 0.5 points at the ECB’s Governing Council meeting on March 16, after already raising it above 0%. up to 3% since last July. He warned that the institution would mandate more hikes in the future if the data and outlook warranted, “until inflation returns to the 2% target.”
In fact, he recalled that on current estimates, this goal would not be reached until 2025, for which he warned that interest rates would remain high for some time and that they would not return to the low levels before the Russian invasion. of Ukraine, which exacerbated the current energy and inflation crisis.
In the short term, the ECB president expected inflation to fall in March and the rest of the year due to a “base effect” as electricity, gas or fuel prices rose in the same months last year. because of the war He admitted, however, that he was very concerned about the high rate of core inflation, which precisely excludes energy from his calculation and which shows gross spillovers across a basket of goods and services and escalating food prices.
Regarding the suffocating inflation in the supermarkets, he pointed out that the reduction in VAT, as the Spanish government has decided from January 1, is not the best answer, as it will benefit both the poor and the richest. In addition, he explained that when the tax cuts are removed (also in the case of energy) there will be a new increase in inflation. In his view, it would be more appropriate to develop direct support measures for the most vulnerable families, and he gave the example of a “€200 cheque” that the Treasury will soon pay to the lowest-income applicants.
As for the double whammy that mortgage-burdened households are receiving from rising repayments, Lagarde said that those with variable-rate debt have enjoyed minimal funding costs for years and that they should be aware that they are now at a disadvantage. He said he knew “the banks are ready to renegotiate terms with their most affected customers” and he gave the government the power to take other measures, such as a cap on mortgage rates demanded by the union. We can, although he didn’t go deeper into this.
For his part, he emphasized that the ECB already knows that the demand for new loans has fallen and that households that need financing now are delaying decisions or resigning.
Customers have to fight with banks for deposits
Asked about the return of deposits by financial institutions, which do not increase while the costs of issuing new loans have increased, Lagarde put the responsibility on customers in this case. “It is they who have to put pressure on banks or change banks,” he said.
Nor did it offer much hope to workers whose wages are demanding a historic loss of purchasing power. In order to avoid appearing too aggressive, he reiterated the demands of the trade unions to hold back on their demands for wage increases. He subtly ignored the idea that wages are rising far less than inflation. On the contrary, he emphasized the growth of SMI and pensions.
Throughout the interview, he did not mention or question the sharp increase in companies’ profits and margins (the ability to turn revenue into profit after passing costs into selling prices). ).
The ECB president also refused to evaluate the transfer of Ferrovial’s headquarters from Spain to the Netherlands, but stressed the importance of “moving towards a European capital market unification that will end the current fragmentation and be able to respond to needs. Large European companies”.
Source: El Diario