EUROZONE inflation has fallen to its lowest level since the height of the 2008 financial collapse, sliding further into what the European Central Bank (ECB) has described as a ‘danger zone’. This is an inflation rate below 1%, and deeper into a massive 1930s- style deflation.
The new inflation figures from the European Union’s statistical office, Eurostat, show that the rate remains persistently below the ECB’s target rate of 2%. Prices have risen at an annualised rate of less than 1% for the last ten months.
Spain’s new figures show a fall in prices over the previous twelve months. while Greece and Portugal already had inflation below zero.
The European Central Bank is desperate to avoid deflation and a deeper slump of the EU economy. There are already very loud demands that the ECB embarks on a full-scale programme of quantitative easing (QE), creating fake electronic money to be handed to the banks to buy government debt in an attempt to induce an expansion of the economy.
It is taken as an expression of the huge gap between the EU and the US that the EU is considering embarking on a quantitative easing money creation spree, just as the US Federal Reserve has decided to end its own QE programme.
In June, the ECB introduced a package of measures to boost growth and tackle the threat of deflation. It cut interest rates, including reducing the bank deposit rate to below zero, and made available cheap long-term loans to banks. It promised to stand ready to take more action if inflation continued to fall.
There is undeniably a very real risk that eurozone consumer price inflation could go lower still. Core inflation which excludes food and fuel costs, was unchanged for July at 0.8%.
The number of registered unemployed in the eurozone stood at 18.41 million in June, down 152,000 from May. The unemployment rate in the 18-nation single currency region in June dipped to 11.5% compared to 12% a year ago. In the wider 28-member European Union the jobless rate also edged lower from 10.3% in May to 10.2% in June.
Austria’s unemployment rate is the lowest in the region at 5%, followed by Germany at 5.1%.
However, Greece, with an unemployment rate of 27.3%, and Spain at 24.5%, are still grappling with severe levels of joblessness.
The region is suffering from stagnation, low inflation, unemployment and debt. However this is the calm before the storm – a deepening of the world crisis will transform this situation into its opposite, by hurling a massive bomb of energy price increases and share collapses into this stagnant pond, provoking rapid inflation and a banking collapse.
The EU’s big economies are already failing. Italy will grow only 0.3% this year, according to the IMF; while France will creep along at 0.7%. Germany will do better at 1.9%. But even this engine seems to be losing momentum.
Rome’s debt is expected by the European Commission to reach 135% of GDP this year. Given that its debt is 2.1 trillion euros, the repercussions of it getting into trouble would be enormous.
The crux of the matter is that a reckoning is approaching. The great oilfields of Libya and Iraq are either ablaze and inoperable or are in the hands of Jihadists.
The EU’s gas supply from Russia is at the mercy of the current US-UK drive to impose massive sanctions on Russia, a drive that has already created a civil war in the Ukraine, and could result in the situation becoming completely umanageable.
This would see the gas pipelines through the Ukraine blocked or blown up, and German, UK, French and Italian capital investments in Russia expropriated!
The eurozone will not be able to withstand such shocks that would produce a banking, shares and industrial collapse, especially since its banks are already loaded up with trillions of euros of eastern European debt!
There is no way out of this crisis except for the workers of Europe to bring down the EU and to go forward to the Socialist United States of Europe. This would immediately establish fraternal relations with Russia in place of the current war fever.