As Mario Draghi was officially stepping down as prime minister, the ECB's Christine Lagarde was raising euro interest rates by 0.50% for the first time in more than a decade.
The ECB is used to lag behind other central banks in monetary policy changes. We recall 2008 and while the Fed was rapidly cutting interest rates, the ECB tried to fake resilience with Trichet raising interest rates, triggering in that way the beggining of the European debt crisis a few years later.
The Eurozone is in the middle of an upcoming new "storm" which is expected to hit hard this winter. The increase in bond yields, the jump in CDS and debt due to the pandemic, the historically high inflation, the weak euro and the energy crisis, make up a terrifying scene. After all, it is no secret that according to many macroeconomic indices, the Eurozone is already in recession and this will be seen within the third quarter.
Mario Draghi, having big experience, put together early enough how things will evolve and knowing first hand the difficulties to reach an agreement in the Eurozone, he chose to leave. In my opinion, Mario Draghi, perhaps with this move, tried to awaken the Eurozone before the “storm” came.
The ECB and the EU will likely face extremely difficult circumstances, where they will be called upon to take difficult decisions. The ECB, realizing that the Eurozone can easily return to a debt crisis, has decided to tighten the monetary policy, but on the other hand, it maintains the bond purchase mechanism (TPI now), as Greece, Italy, Spain are already in a dangerous situation zone with rising bond yields.
Income, high prices, natural gas
The EU should now prepare for the difficult winter that will bring a sharp decrease in income, increased energy prices and a limited flow of natural gas. The above will lead to a significant recession, unless away is found to deal with them. After all, Germany's central bank itself, in its analysis, admits that if Russia shuts off the natural gas tap, Germany would see 5% of its GDP disappear immediately.
It is my strong belief that the Eurozone will split into different blocks as there are countries more prepared to face the energy crisis and countries less prepared and with heavy industry.
Already, Germany's proposal to limit gas consumption by 15% has been rejected by Greece, Spain and Portugal, and this is just the beginning. When the possibility of a major recession knocks on the door of Italy and France, there may be a crack in the Eurozone's strong refusal to block natural gas.
ecause we should not forget that the decisions to embargo Russian gas were made knowing that summer there is less need for energy and also hoping for some positive development in the Ukraine-Russia war.
Bearing in mind all of the above, the need for more autonomy in the European states, in terms of managing the situation that has emerged, becomes imperative.
For example, Greece looks like it will again focus on the support of the affected social classes and there will be relief measures. At the same time, in order to be able to create additional wealth and increase both its tax base and its future GDP, it will have to accelerate even more the attraction of large investments and even greater incentives for business investments as the Eurozone remains the great patient in this field.
Source: Republished from powergame.gr (https://www.powergame.gr/scripta-manent/282302/mia-nea-kataigida-thetei-se-dokimasia-ti-synochi-tis-evrozonis/)
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