Exceptional Publications
Contents
9. Just One Way for ECB to fully hit its Inflation Target?
8. The Solution to the Most False Conflict in History
7. The Paradox and the Solitude of the Monetary Policies of the ECB
6. How the Policy of Bank of England Makes ECB's 2% Inflation Target Impossible
5. Inflation Worsened by Central Banks and National Governments!?
4. Interest Rate Hikes of ECB to Cut Inflation: Are They a Bluff?
3. The Diversification and the "strange" Trade-off between Oil and Gas Prices
2. ECB's Restrictive Monetary Policy in 202 : Harmful or Beneficial?
1. How to Bring Down Gas and Energy Prices Immediately and Realistically
9. Just One Way for ECB to fully hit its Inflation Target?
March 20, 2024
Please look at these data showing the inflation rate year on year as of February 2024 EU, Country by EU Country.
What a difference!
Italy, Latvia, Finland, Lithuania are around 1%.
Portugal, Cyprus, Ireland around 2%.
Spain, Netherlands, France, Luxembourg, Germany, Malta, Greece, Slovenia around 3%.
Belgium, Estonia, Slovakia, Austria, Croatia around 4% or near 5%.
The reasons are clear enough to me!
1 - Different economic structures when you look at the economic industry distribution in each Country. You can find Countries where services have a percent weight more important than they have in others. This facet is important because the current inflation also derives by the wage level growth that is different industry by industry.
2 - Different percent weight of import vs export when we compare EU Countries to each other and since most of inflation is generated by supply bottlenecks, this aspect is vey impacting.
3 - Different kind of import structure that is very relevant in particular in Country dependent on energy products imported from outside EU and that are affected by Ukraine-Russia conflict and the sanction policy on Russia.
4 - Different efficacy degrees of the transmission mechanisms of the EU's monetary policy into the single Countries as a result of the different actions taken by the national governments in charge in each of the EU Countries.
5 - Different cycles of Economic Growth Country by Country; some are growing more than others.
6 - Fiscal Policies different Country by Country.
At this point, can a single EU's monetary policy equally affect all the nations involved with the same degree and with the same expected timing?
NO, it cannot!!
The solution is realistic:
Regrouping EU's countries according to some criteria that put together the ones that approach the same level.
One can think of the latest inflation rates recorded as the mentioned criteria and in so doing you can see up to 4 groups.
In reality, just as I explained above, the different inflation rates depend on many factors and their combinations they are the result of.
It would be better choose those factors for creating the groups.
In the end ECB could decide different actions.
Here is the procedure.
First Step is selecting the main factors causing the inflation as the criteria of distinction.
After that you can attribute a score to each of the criteria according to its single impact on the general inflation of EU area.
Final Steps consist of calculating the score of all the Countries involved, spotting 3/4 groups and putting thogether those countries that have the score falling into each group.
A simplified example with this matrix:
Countries | A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | |
FACTORS | Score | |||||||||||||||||||
Services more than 40% | 6 | X | X | X | X | X | X | |||||||||||||
Importer Country | 5 | X | X | X | X | X | X | X | X | X | X | |||||||||
Large Energy Importer | 4 | X | X | X | X | X | X | X | X | X | X | X | ||||||||
"Good Policy Conveyor" | 3 | X | X | X | X | X | X | X | X | X | X | X | ||||||||
GDP Growth Up 3% | 2 | X | X | X | X | X | X | |||||||||||||
Stimulating Fiscal Policy | 1 | X | X | X | X | X | X | X | X | X | X | |||||||||
Total Score | 10 | 12 | 13 | 13 | 9 | 12 | 10 | 10 | 9 | 6 | 10 | 8 | 9 | 9 | 6 | 11 | 10 | 8 | 10 |
Group 0-8: Countries J,L,O,R
Group 9-11: Countries A,E,G,H,I, K, M,N, P,Q,S
Group 12 Plus: Countries B,C,D,F
Once created these groups, EU shall be able to take more courses of "action", each of them good for each group and the countries falling into.
Visionary?
I don't think so. Just a radical change of course acknowledging that only by considering the differences a single goal can be pursued: an inflation rate that is almost the same for everyone.
Thanks President Lagarde for your steady attention you have been paying to this page.
8. The Solution to the Most False Conflict in History
Publishing date on this website: January 23, 2024
Publishing date on Linkedin: January 21, 2024
Writing date: July, 23 2023
What to say about the conflict between Ukraine and Russia!?
Just that it is the most avoidable conflict History ever known and that is impacting the world more that any other past war!!
Here attached you can find the framework that I think as the most appropriate to find the right solution.
7. The Paradox and the Solitude of the Monetary Policies of the ECB
October 8, 2023
Germany
The German GDP is shrinking by 0.6% this year | Euronews
Excerpts in the focus
"According to five economic institutes who provide their common forecast twice a year, the country’s GDP is expected to decline by 0.6 in 2023, as rising interest rates take their toll on the economy and high inflation depresses consumption."
"Germany has been in a downturn for more than a year, mainly due to the sharp rise in energy prices in 2022. The loss of cheap natural gas sources such as Russia, put the country’s energy-intensive industries in a difficult situation."
"Consumer price inflation has made things worse, rising to over 8%, leaving domestic consumption at a low level. Meanwhile, the high interest rates hit the construction industry very hard."
Italy
Italy raises budget deficit forecast amid mounting economic pressures | Financial Times (ft.com)
Excerpts in the focus
"Italy’s 10-year bond yield rose 2 basis points to 4.8 per cent on Thursday morning, close to an 11-year high. The spread over the German equivalent increased slightly to 195bp, after Germany’s 10-year bond yield was up 1.3bp on Thursday."
"Consumer price inflation has made things worse, rising to over 8%, leaving domestic consumption at a low level. Meanwhile, the high interest rates hit the construction industry very hard."
EU as a whole
Eurozone 2024 fiscal tightening seen limited by slowing economy - GulfToday
Excerpts in the focus
"The eurozone’s central bank has been calling on governments to help curb price growth that is still more than 5%. While eurozone finance ministers agree, the ECB’s inflation problems are not always their top priority."
"Slower economic growth does not help. The Commission has cut its eurozone growth forecast to 0.8% in 2023 from 1.1% and to 1.3% in 2024 from 1.6%. The ECB is even more pessimistic, with a GDP forecast of 0.7% for 2023 and 1.0% for 2024."
After your reading the main conclusion is that it is common opinion and analysis the EU's Countries have been going toward a soft landing (or recession in some cases) and the Monetary Policy of ECB to cut inflation is without the desired effects and is worsening the situation, bringing about stagnation.
The previous articles on this page have highlighted how dealing with an inflation powered by the supply side as a demand-driven one is dangerous with regard to different aspects.
For instance, as a matter of fact European Central Banks hike the Interest Rates up trying to cut inflation while OPEC and RUSSIA cut Oil Production to make the OIL price higher to offset the potential decrease in its demand and the resulting decrease in its price following the potential soft landing caused by the Central Banks' hikes.
The result is an endless spiral.
At the same time, many indebted companies have been discharging, since ECB started to hiking the interest rates up, their higher financial expenses on the prices of their products and that's been happening mainly in some markets such as many ones concerning the goods of first necessity.
It goes without saying that the increase in interest rates are putting in trouble the most indebted coiuntries that see the returns paid on the their issued bonds increasing even more.
Those articles have also shown up the need for a cordination between ECB and Bank of England (BOE) because there is a strong need to reduce the imported inflation.
One positive thing taken from the readings I have proposed by attaching the above links is that ECB is becoming aware that it needs some help.
At the moment this awareness materialized as a request to the national governments for some actions of them to reduce inflation.
I hope that this request doesn't hide the indication to tighten the fiscal policy in order to increase taxes.
As I wrote on page Economia e Altro at n. 14, in the Italian section, (Economia ed Altro | The Strategic Controller) the solution could be liberalize the Sales without limits and time intervals.
Some mechanisms would spread on the basis of which the dealers wouls sell larger quantities of goods at a reduced price (thanks also to an increased competition about the price) and as a result would order larger quantities of goods.
This large orders would allow to obtain important rebates on the goods bought by the detailers from the wholesalers.
The same mechanisms would materialize in the relationships between wholesalers and producers.
The more sensitive to price the end customers the more possible these mechanisms.
This would concern many, many supply chains.
Summing up, it's clear how ECB needs for a hand of the national governments.
Last but not least, I wonder how in this fight against the inflation Europewide the determination of the price to the end users of Natural Gas is different from one country to another.
If we think the inflation concerns mainly the Energy products, the present multiform legislations on the matter don't make sense.
That's even more true in consideration of the deep speculation existing in this market, as many experts know.
6. How the Policy of Bank of England Makes ECB's 2% Inflation Target Impossible
August 17, 2023
When one makes important decisions, it would be very appropriate examining all the facets tied to those decisions.
When one makes "extreme decisions", it would be mandatory doing it and editing those decisions if the expected benefits could get improbable.
This is even more true when the subjects involved are interconnected.
What am I talking about?
The trendy subject is as always the tightening monetary police of Central Banks to tackle the galloping inflation.
We are observing a continuous competition between the Central Banks of the world in increasing interest rates but it seems the desired effects are not reaching the desired extent.
In the previous articles I have shown my doubts about the strategy used by ECB to fight an supply-driven inflation, worsened also by a strong speculation sneaked into the different supply chains.
Now I am going to explain that another factor is being neglected and that unfortunately, but realistically, makes the tools used very unsatisfactory.
Here the interconnection factor comes in.
Banks of England makes use of strong increase in the interest rates into an economy whose strenghts is the service sector that accounts for almost 80% of UK's GDP
In its turn the service sector consists of a large share of financial services and insurance.
Moreover, the United Kingdom is a great exporter of services as you can see by comparing data of paragraph 3.4 to paragraph 4,4 concerning respectively the data of
Top 5 UK services exports of 4 quarters to the end of March 2023 and
Top 5 UK services imports of 4 quarters to the end of March 2023
UK trade in numbers (web version) - GOV.UK (www.gov.uk)
Please note that (the insurance services come in immediately after the top five UK service exports 2022 | Statista)
As you can see the Financial Services from this comparison have a general surplus of £ 60 billion.
As far as this feature serve as a basis for my theory, it is important to tell also that since 2005, the United Kingdom is a net exporter of services to the European Union (EU) member states.
Why did I indicated all these data?
In July the inflation in the UK's services sector is still very high even if the core inflation has decreased.
In July the wage increased in UK with a great pace, in particular in the services sector.
If we all bear in mind that an increase in the interest rates is a profit increase of the banks and the insurances (historical analysis shows how over interest rate increase period the profit of insurances becomes higher), wh can also see how a large share of this additional profits translates into higher wages for the workers involved.
In its turn this positive variation of financial/insurance wages goes into the price of the financial/insurance services sold to the customer that become expensice and expensive.
It goes without saying that a spiral effect materializes.
As a result, being the UK a net exporter of services towards the EU, an inflation component is transmitted to the importer Countries.
It's clear that this is another obstacle to achieve the goal to downsize th cost of living through just continuous interest rate hikes.
Summing up, ECB makes uses of an inappropriate tool to fight against a supply-and-speculation- driven inflation and there is a strong need of coordination between Central Banks in order not to jeopardise the effects a smoothed weapon in a hyper-interconnected economy.
Hope the ECB's readers of this webpage may take into account what I described so far in tackling a very strong enemy that impacts even more negatively all the economy starting from the common people.