ECB Vice Constancio warns of 'dangerous vicious circle "
Oil prices steadily falling stir at the European Central Bank, the fear of deflation. ECB Vice Constancio warns of a "dangerous vicious circle".
"In the short term this creates a not an easy situation for us," admitted ECB Vice President Vitor Constancio an interview with Business Week. "We now expect a negative inflation rate in the coming months. That's one thing that has to look at each central bank very closely."
The original estimate of the ECB inflation for 2015 from 0.7 per cent is already out of date for the ECB Vice. "Since the drafting of these projections, oil prices have fallen by a further 15 percent." The ECB must now prevent a downward spiral. It threatens "a dangerous vicious circle of falling prices, rising real wages, falling profits, shrinking demand and prices continue to fall," warned the ECB Vice-President. "The economy would slip into recession." Currently, many experts predicted that the economic slowdown will continue in the euro zone by 2018. Constancio: "Until then, so there is downward pressure on inflation expectations."
Currently, the euro-zone but location is not in deflation. "A few months with negative inflation rates mean deflation. These negative inflation rates must be over a longer period of time," said Constancio. "If it is only a temporary phenomenon, then I see no danger begin. Deflationary tendencies when the company and the people change their behavior and postpone investments and expenses."
There is also a risk of deflation does not consist in all euro area countries. "In countries such as Spain and Ireland, whose economy is slowly recovering, increasing productivity. This creates scope for wage increases, which counteract the threat of deflation," Constancio said the former President of the Banco de Portugal was.
In the fight against deflation, the ECB had to use all possible resources, including the controversial purchase of government bonds, which had recently criticized Bundesbank President Jens Weidmann. "We need to use all monetary policy instruments at our disposal," Constancio said. "Is basically quantitative easing, everyone is talking about now, nothing more than a traditional open market operation, ie about the possibility of a central bank, securities, government bonds, to buy in the secondary market or sell to control the monetary base. This is perfectly legal. And what is legal, we do not exclude. " There is nevertheless at the ECB "not an obsession, necessarily to buy government bonds."
Constancio sees no danger bubble in the stock and real estate markets
The European Central Bank keeps warnings of a bubble in the financial markets is unfounded. "In the US, the price-earnings ratio of the shares is somewhat higher than the historical average -. But not in Europe here I do not see any significant overvaluation of equity markets," said ECB Vice President Vitor Constancio in an interview with Business Week. "Even in corporate bonds, we can not recognize such overvaluation." Similar to the situation in the real estate markets is. In some euro area countries, prices have risen in recent years significantly, such as Belgium and Ireland. In Belgium, the national supervisory authorities had already responded and increased capital requirements for mortgage loans. In Ireland there are now more stringent capital requirements. "Overall, I see no danger for Europe a new house price bubble," said Constancio.