ECB President Christine Lagarde has misadjusted her inflation gauges. It is legally committed to the goal of monetary stability – because only monetary stability can guarantee Europeans a prosperous life. But she has another lover.
If you want to understand the dramatic hopelessness into which the ECB has maneuvered the European continent, you should reach for Siegfried Lenz. In his short novella, The Flood is on Time, which has received little attention from literary critics, he describes a murder without a murderer. Everything seems like an unfortunate chain of events. It looks like fate, but there is a devilish plan behind it.
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A woman lives on a North Sea island and wants to get rid of her husband in order to start a new life with her lover. Her husband is an experienced hiker. He leaves the house at low tide, wades through the Wadden Sea and will never return.
She stands at the window and knows it. Beloved Tom is standing next to her and doesn’t know it yet. In the dramatic final scene he says:
“He can’t do it anymore
create! Do you hear what I
legend? He’s cut off
from the flood, do you know that?”
–
“Yes, Tom.”
–
“He was on time every day-
lich back, long before the
Flood. why is he still
not there? Why?”
–
“His watch, Tom,” she said,
“His watch is slow today.”
This is how the timepiece became a murder weapon. The unsuspecting man missed the right timing for the way back and sank in the flood waters.
Which brings us to Christine Lagarde. It also misaligned the gauges it uses to measure inflation. It is legally committed to the goal of monetary stability – because only monetary stability can guarantee Europeans a prosperous life. But she has another lover.
Gabor Steingart is one of the best-known journalists in the country. He publishes the newsletter The Pioneer Briefing. The podcast of the same name is Germany’s leading daily podcast for politics and business. Since May 2020, Steingart has been working with his editorial staff on the ship “The Pioneer One”. Before founding Media Pioneer, Steingart was, among other things, CEO of the Handelsblatt Media Group. You can subscribe to his free newsletter here.
Your Tom is called Europe. She wants to save Europe. She wants to protect the debtors from the lenders. She wants to give the ailing countries in the south of the continent, which now also includes France, financial breathing space. That is why they first politicized and then fictionalized inflation measurement. The indebtedness of the states and the once agreed upon stability criteria are out of sight.
“He can’t do it anymore
create! Do you hear what I
legend? He’s cut off
from the flood, you know that?”
She knows it and added two new ones to her series of miscalculations yesterday at the ECB meeting in Amsterdam. For the coming year, it is now forecasting a halving of currency devaluation, which is now more than eight percent in the entire euro area. There is no scientific justification for this prognosis.
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And: She predicts the halving of the halving for the year 2024, i.e. the return to the original ECB stability target of two percent. This means that the fight against inflation has lost all urgency. The hidden message is that the water recedes almost by itself. The prophetess once again (see graphic) appears as a fairy tale aunt.
She herself does not believe that her measures will take effect quickly, as Christine Lagarde readily admitted yesterday. She asked herself: ‘Do we expect the rate hike in July to have an immediate impact on inflation? The answer is no.”
While the US central bank had already raised the key interest rate by 0.5 percent in May, the ECB only intends to raise it by 25 basis points, i.e. by 0.25 percent. This means that money in Europe still has no price. Negative interest rates remain, just a little less negative.
The ECB intends to end the purchase programs for government bonds and shares in the coming month. After all, this puts the debtors under massive pressure, especially those states and companies that can hardly find buyers for their debt instruments on the free market.
The background: As part of its program to purchase corporate bonds, the ECB owned corporate debt worth 341 billion euros at the end of May. Barnaby Martin, head of European credit strategy at Bank of America, told the Financial Times: “The ECB became not just a buyer of last resort, it became a buyer of first resort. The sheer volume they bought up was enormous.”
But the withdrawal from financing states and companies should by no means be as abrupt as it initially sounded. Christine Lagarde does not want to leave her beloved Europe alone now. This is one of the reasons why she is pointing in the direction of the back door: “We know how to develop new instruments and use them when necessary. We have proven that in the past and we will do it again.”
Conclusion: The ECB is pretending to fight inflation. But inflation will not therefore pretend to obey the ECB. Too late and too little: This is how you could summarize yesterday’s decisions.
In any case, the wave of price increases was not broken yesterday. The current is already too strong. The whitecaps are swirling everywhere. The little people who suffer most from the rise in prices can hardly believe their misfortune. Many are already up to their necks in water. You will experience that the economic laws are in no way inferior to the cruelty of the forces of nature. Or to paraphrase Siegfried Lenz: “The flood is on time.”
