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#ECB negative rates not harmful, but inflation rise to stay elusive: Reuters poll

Guest contributor



The European Central Bank’s negative interest rate policy is not harming the euro zone economy but will not succeed in bringing inflation up to the central bank’s target, a Reuters poll of economists found, writes Richa Rebello.

Policymakers cut interest rates to below zero percent in June 2014 to fight chronically low inflation and weak growth in the eurozone but the policy has been criticized, especially by banks, savers and pensioners whose incomes it has hit.

Even some ECB policymakers have highlighted how negative rates can fuel asset bubbles and prop up inefficient businesses.

More than two-thirds — 30 of 41 — of economists who answered an additional question in the Feb. 10-14 Reuters survey nevertheless said the policy is not doing more harm than good to the euro zone economy.

“I don’t think we are at the level where it (sub-zero rates) starts having a negative impact. The big concern is how long you will have to run low or even negative rates,” said Anatoli Annenkov, senior European economist at Societe Generale.

“Yes, they have an impact on profitability and the banking industry, but still you are generating credit growth. I think the ECB is still OK, but with a lot of question marks on what they can do in the future with negative rates.”

Like other major central banks, the ECB is expected to keep policy stable this year, especially as the euro zone’s central bank is undertaking a wide-ranging review of its activities initiated as new ECB President Christine Lagarde took charge.

That is despite a subdued outlook for global growth and inflation, a turbulent trade environment, and the outbreak of the coronavirus in China, which is crimping business sentiment worldwide and has clobbered its economy.

Reuters polls over the past few years have repeatedly concluded that the ECB would not succeed in bringing inflation to its target of just below 2% despite record-low rates, a second round of asset purchases and cheap long-term loans to banks. So far they have been correct.

“I don’t think there’s anything much that the central bank can do,” said Andrew Kenningham, chief European economist at Capital Economics.

“It is similar to the situation we’ve seen in Japan for a long time where it has really reached the end of the road ... unconventional policies like QE (quantitative easing) and negative rates and the TLTROs (bank loans) have limited traction. So, I don’t think monetary policy can help very much.”

The latest Reuters poll again predicted euro zone inflation would average 1.3% this year, unchanged from last month’s estimate, and fall short of the target until at least 2022.

Euro zone GDP growth was expected to average 0.2%-0.3% every quarter through to 2022. But the forecast for full-year growth this year was lowered for the first time in five months to 0.9%, the lowest since polling began for 2020.

The 19-country currency bloc’s three largest economies reported disappointing growth in the last quarter, with Germany flatlining and France and Italy contracting.

Economists polled largely predicted the ECB deposit rate would stay at -0.5% and the refinancing rate would remain at zero until at least 2022, unchanged from last month.

A notable minority — 11 of 41 economists — said the ECB’s policy of negative rates was hurting the economy more than stimulating it.

Faced with similar stagnant growth and low inflation, Sweden’s central bank ended a five-year period of negative rates in December by raising its benchmark rate to zero.

“The Riksbank has shown that it is possible to abandon negative interest rates while at the same time still following a very expansionary monetary policy that is supportive for growth and inflation,” said Martin Weder, senior economist at ZKB.

“The sooner the ECB abandons negative interest rates, the better for everyone. Negative interest rates have had only a very limited effect on growth and inflation, but its distortions are massive.”


EU has not yet ordered more AstraZeneca vaccines, says internal market commissioner





Syringes are prepared to administer the AstraZeneca coronavirus disease (COVID-19) vaccine at a new mass vaccination centre in WiZink sports arena in Madrid, Spain, April 9, 2021. REUTERS/Sergio Perez

The European Union has not yet made any new orders for AstraZeneca (AZN.L) vaccines beyond June when their contract ends, European Internal Market Commissioner Thierry Breton (pictured) said on Sunday (9 May).

Breton also said he expected that the costs of the EU’s recent order for more doses of Pfizer-BioNTech (PFE.N) vaccines would be higher than the earlier versions.

The Commission last month launched legal action against AstraZeneca for not respecting its contract for the supply of COVID-19 vaccines and for not having a “reliable” plan to ensure timely deliveries.

"We did not renew the order after June. We’ll see what happens," said Breton, adding that it was "a very good vaccine".

Concerns has risen on potential side-effects of the Anglo-Swedish COVID-19 vaccine.

Europe's medicines regulator said on Friday it is reviewing reports of a rare nerve-degenerating disorder in people who received the shots, a move that comes after it found the vaccine may have caused very rare blood clotting cases. Read more.

Breton said an increase in prices for second generation vaccines could be justified by the extra research required and potential changes to industrial equipment.

The European Union signed a new contract with Pfizer-Biontech to receive 1.8 billion doses of COVID-19 vaccines for 2021-2023, to cover booster shots, donations and reselling of doses, the European Commission said on Friday (7 May). Read more.

“There may be a little extra cost but I will let the competent authorities unveil it in due course,” he told France Inter radio.

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Conference on the Future of Europe: Make your voice heard

EU Reporter Correspondent




The Executive Board approved on 9 May the Rules of Procedure that set out the composition of the Plenary of the Conference on the Future of Europe, and how it will work.

The text approved on Europe Day 2021 will complete the rules determining how the Conference Platform, Panels and Plenary can transform citizens' priorities, hopes and concerns into actionable recommendations. It adds to the rules previously adopted concerning the working methods of the Executive Board and those related to citizens' participation.

On the same day, the European Parliament in Strasbourg hosted the inaugural event of the Conference on the Future of Europe. Watch it here.

Ensuring that citizens' input will be taken into account

The Conference Plenary will be composed of 108 representatives from the European Parliament, 54 from the Council (two per member state) and three from the European Commission, as well as 108 representatives from all national Parliaments on an equal footing, and citizens. 108 citizens will participate to discuss citizens' ideas stemming from the Citizens' Panels and the Multilingual Digital Platform: 80 representatives from the European Citizens' Panels, of which at least one-third will be younger than 25, and 27 from national Citizens' Panels or Conference events (one per member state), as well as the president of the European Youth Forum.

Some 18 representatives from both the Committee of the Regions and the European Economic and Social Committee, and another eight from both social partners and civil society will also take part, while the High Representative of the Union for Foreign Affairs and Security Policy will be invited when the international role of the EU is discussed. Representatives of key stakeholders may also be invited. The Conference Plenary will be gender-balanced.

Their exchanges will be structured thematically around recommendations from the Citizens' Panels and input gathered from the Multilingual Digital Platform. The Platform is the single place where input from all Conference-related events will be collected, analysed and published. In due course, the Plenary will submit its proposals to the Executive Board, who will draw up a report in full collaboration and full transparency with the Plenary and which will be published on the Multilingual Digital Platform.

The final outcome of the Conference will be presented in a report to the Joint Presidency. The three institutions will examine swiftly how to follow up effectively to this report, each within their own sphere of competences and in accordance with the Treaties.

Parliament's Co-Chair of the Executive Board Guy Verhofstadt said: “We want to create real momentum from the bottom up. The Conference will be much more than a listening exercise, but a way to truly include citizens in mapping out our shared European future. The foundations have been laid: digital and deliberative democratic experiments that have never been tried on an EU-wide scale. We will guarantee that their concerns and proposals will then get a political answer. It's new and exciting, and it starts today.”

The Portuguese Secretary of State for EU Affairs and Co-Chairwoman from the Presidency of the Council of the EU, Ana Paula Zacarias, said: “Coming from Porto to Strasbourg, to celebrate Europe Day and the launching of the Conference on the Future of Europe, the words of President Mario Soares came to my mind when back in 1976 he defended: ‘to rethink Europe and its future is a permanent duty of all Europeans. A joint endeavour that needs to be taken forward with humbleness facing the historic relevance of our common goals."

Commission Vice President for Democracy and Demography and Co-Chairman Dubravka Šuica, said: “This Conference is an unprecedented exercise for the EU. We are creating a space where citizens can debate on a par with elected representatives to spell out the future of Europe. This has never been tried before, but we are confident that this will strengthen both our European Union and our representative democracy. And there is no better date to celebrate that than on 9 May.”

Next steps

The Executive Board will soon set the date for the first Conference Plenary meeting. Preparations for the Citizens' Panels are underway, while the number of participants and events on the Conference's Multilingual Digital Platform continue to grow. The Conference is committed to give maximum space to young people and in this vein, preparations for the European Youth Event organised by the European Parliament in October also continue.

More information

Digital Platform for the Conference on the Future

Questions & answers on the multilingual digital platform for the Conference on the Future of Europe

Charter of the Conference on the Future of Europe

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EU calls on US and others to export their vaccines





European Commission President Ursula von der Leyen speaks during the opening ceremony of an EU summit at the Alfandega do Porto Congress Center in Porto, Portugal May 7, 2021. Luis Vieira/Pool via REUTERS

The European Commission called on Friday (7 May) on the United States and other major COVID-19 vaccine producers to export what they make as the European Union does, rather than talk about waiving intellectual property rights to the shots.

Commission head Ursula von der Leyen told a news conference on the sidelines of a summit of EU leaders that discussions on the waiver would not produce a single dose of COVID-19 vaccine in the short- to medium-term.

"We should be open to lead this discussion. But when we lead this discussion, there needs to be a 360 degree view on it because we need vaccines now for the whole world," she said.

"The European Union is the only continental or democratic region of this world that is exporting at large scale," von der Leyen said.

She said about 50% of European-produced coronavirus vaccine is exported to almost 90 countries, including those in the World Health Organization-backed COVAX program.

"And we invite all those who engage in the debate of a waiver for IP rights also to join us to commit to be willing to export a large share of what is being produced in that region," she said.

Only higher production, removing exports barriers and the sharing of already-ordered vaccines could immediately help fight the pandemic quickly, she said.

"So what is necessary in the short term and the medium term: First of all vaccine sharing. Secondly export of vaccines that are being produced. And the third is investment in the increasing of the capacity to manufacture vaccines."

Von der Leyen said the European Union had started its vaccine sharing mechanism, citing delivery of 615,000 doses to the Western Balkans as an example.

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