Bazooka not enough says Constâncio
A former vice president of the European Central Bank and ex-Governor of the Bank of Portugal says he is “disappointed” at the EU’s financial response to the Covid-19 pandemic.
Vítor Constâncio says that the Euro Zone could do more for its citizens and says compares unfavourably to the United States.
Constâncio says “unfortunately” Europe has a budgetary policy that is “extremely insufficient” to deal with the effects of the pandemic crisis.
Despite the European Union having made the historic decision to take on joint borrowing, which would have been unthinkable a few years ago, the seasoned banker says that the US is a good example while the EU is eaten up by its fears and fantasies”.
In a series of tweets published on Tuesday, Constâncio predicts that there will be no significant structural inflation over the next few years in the advanced economies.
However, he also laid criticisms at the door of the EU, saying its budgetary policy “falls extremely short” and wrote, “the European Recovery Fund” (Next Generation EU) was being “delayed by the German constitutional court and whose €350Bn in loans will be underused by the EU countries since the “rules for their use imply increasing their budget deficits.”
This situation contrasts with the one in the US and the US$1.9Tn package prepared by Joe Biden which will start being distributed to citizens shortly, to be added to the other packages approved by the US government in 2020.
“There is a growing chorus in ‘market literature’ about the alleged return of the inflation spectre. Inflation is increasing this year because of oil and pent-up demand which are one-off effects. Still, the hawks are invoking all possible causes of inflation to justify their warnings,” says Constâncio.
And continues … “However, all official institutions, national and international, are not forecasting high inflation. Taking into account this year’s one-off shocks, the FED projects inflation this year and next to be only 2.4% and 2%, and the ECB forecasts levels of 1.5% and 1.2%”.
“Disregarding those predictions, hawks mention all possible drivers to justify their inflation scare. From fiscal deficits, regardless of private demand and economic slack, to attempting to resurrect zombie monetarism of yore based on recent temporary money increases,” the former governor of the Bank of Portugal said.