The increase in inflation obliterated the story of the economic recovery that European institutions had been supporting, which so far maintained the theory that it is better to overdo it than to undercut stimulus. The European Central Bank (ECB), through its Pandemic Emergency Purchase Program (PEPP), and the European Commission, together with the European Recovery Fund, have moved within these parameters. On the other hand, higher prices are putting more pressure than ever on Eurobanco, whose board of directors meets on Thursday in Frankfurt. Markets aren’t anticipating any major changes, but are keen on any indication that its president, Christine Lagarde, might point to inflation.
Lagarde has made up so far hawks, who wanted to speed up the step in withdrawing the debt purchase program, and Palomat, who fear that any mistake in withdrawing these acquisitions may mean an increase in risk premiums. At the September meeting, the President of the European Central Bank decided to reduce the program’s asset purchase rate, which amounts to 1.85 trillion euros, from the monthly volume of 80,000 million to an amount between 60,000 and 70,000 million euros. However, it was very clear:The lady does not diminish [”La señora no está retirando estímulos”]He said in paraphrasing Margaret Thatcher, Prime Minister of the United Kingdom between 1979 and 1990.
The European Central Bank raised its inflation forecast for 2021 to 2.2%, but considered that in the medium term it would fall below 2%: 1.7% in 2022 and 1.5% in 2023. In subsequent interventions, Lagarde repeatedly insisted that inflation “Temporary” “due to bottlenecks, labor shortages in some sectors, a strong recovery in consumption after the pandemic, and a sudden rise in energy prices after the pandemic. He also asked not to overreact.” However, it acknowledged its concern that the effects of the second round could be disrupted as a result, on the For example, salary negotiations.
Lagarde’s diplomacy
Markets are not expecting more announcements this Thursday from Lagarde. It’s not about the purchase program, let alone the eventual reduction in interest rates. However, they are carefully awaiting any change in language or reference with regard to prices, as it may indicate the path taken by the European Central Bank at the next December meeting, when the institution will have to decide the fate of the emergency programme, which is due to be published until March. Or until the epidemic is over.
Jens Weidmann’s career as head of the Bundesbank is, for now, hawks within the institution. However, it leaves as a rhetorical legacy for the rest of the orthodox sector of the establishment, which has recently been forced to lower its tone due to some desertions – such as that of Finn Olli Rehn – and above all, a massive reversal of the crisis. The minutes of the European Central Bank’s September meeting show that advocates of discipline have already warned of inflation. In public, not only hawks he Said. Mario Centeno, Governor of the Bank of Portugal, warned of the dangers of an early withdrawal of monetary stimulus. For this Thursday, Lagarde will have to use more diplomacy to reconcile these two spirits and tackle rising inflation without derailing the economic recovery.
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