Eurozone economies react unevenly to economic turmoil, posing challenges for ECB – Xinhua

Photo taken on June 1, 2022 shows the euro sculpture in Frankfurt, Germany. (Xinhua/Lu Yang)

“The biggest problem currently facing eurozone economies is uncertainty,” Giuseppe De Arcangelis, professor of international economics at La Sapienza University in Rome, told Xinhua.

ROME, July 3 (Xinhua) — Euro currency zone economies have reacted unevenly to the economic turmoil of recent weeks, raising the stakes for the European Central Bank (ECB) as it prepares to raise rates of interest for the first time in over a decade.

The economic indicator that most economists watch is inflation. Prices in the 19-nation currency area rose 8.6% in June compared to the same month in 2021, according to Eurostat.

This figure beat the previous record for the euro zone reached a month earlier, when in May, year-on-year inflation stood at 8.1%.

The European Union began tracking eurozone economic data in 1997, two years before the common currency was created.

But even price increases in the euro zone vary, ranging from a low of 5.2% in France to 20.0% in Estonia in May, which, together with Lithuania (where prices increased by 18.9% ) and Latvia (16.9%) are the eurozone countries hardest hit by the rise in energy prices. prices caused by the conflict between Russia and Ukraine.

In Spain, prices rose 10.2% in June on an annual basis, the highest rate since 1985. The 8.0% rate recorded for Italy in June was the highest since 1986.

Gasoline and diesel prices are displayed near a gas station in Rome, Italy, June 23, 2022. (Photo by Alberto Lingria/Xinhua)

Other indicators varied similarly: Eurozone unemployment levels over the last reporting period ranged from 2.8% in Germany to 13.1% in Spain. Estimates of economic growth for this year in the Eurozone have ranged from just 1.0% in Estonia to 5.8% in Portugal.

“The biggest problem currently facing eurozone economies is uncertainty,” Giuseppe De Arcangelis, professor of international economics at La Sapienza University in Rome, told Xinhua.

De Arcangelis was referring to rising prices and other impacts stemming from the Ukraine crisis, as well as the monetary policy of the ECB, which said it would raise interest rates this month for the first time since 2011 with the aim of reducing inflationary pressure by reducing the supply of euros.

“The ECB can’t do much, since we are suffering from both a negative supply shock and a demand shock,” De Arcangelis said. “But they seem to want to reduce inflation even at the cost of economic growth.”

These concerns represent a sharp about-face for eurozone policymakers who, in the past, have been preoccupied with ways to stoke inflation by spurring higher demand among European consumers. Now the role is reversed.

The ECB also said it would at least temporarily end its support for government bonds this month, another move that has implications for financial markets.

European Central Bank (ECB) President Christine Lagarde attends a session of the 2022 annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, May 25, 2022. (Xinhua/Zheng Huansong)

According to media reports, the immediate impact was stronger demand for bonds from the strongest eurozone economies such as Germany and the Netherlands, and higher interest rates for the strongest countries. debtors from southern Europe, including Italy, Greece and Spain.

With different economies reacting to events in different ways, this has heightened the challenge for the ECB as it seeks the best overall policy strategy for the 19 eurozone countries.

“Monetary policy is at a difficult time,” ECB President Christine Lagarde said earlier this week at the bank’s annual forum in Portugal, a statement that surprised few observers.

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