For some, it could be vocabulary, because basically only one term has changed in the whole strategy. The traditional role of the ECB is to maintain price stability in the euro area and therefore to monitor inflation very closely. It was still very small, at least the official one. With the exception of Germany, Western Europe achieved very weak economic growth due to it and low interest rates. The GDP of European countries has grown, but very little, and if rising debt were included, the result would be more than sad.
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Due to the halt and subsequent start-up of the economy, which caused a shortage of goods, inflation started around the world. In the USA, it significantly exceeded 2%, which has so far been the inflation target of the US Federal Reserve (Fed). The Fed changed its strategy even before the ECB. He all pointed out that higher inflation now does not matter because it is temporary. In other words, the Fed will not intervene against inflation by raising interest rates.
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The ECB has now copied its approach and also changed the inflation target, which was previously set at a maximum of 2%. Now he can go beyond it. In other words, if inflation is higher than 2%, the ECB will not intervene, which was previously its duty. It will leave interest rates and asset purchases unchanged, regardless of inflation.
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It deliberately did not set another limit at which it could take action, nor did it set a time period for which increased inflation could last. This is to prevent possible speculation about raising rates. The next important meeting of the ECB will be on July 22 to discuss the next strategy after March next year. Virtually nothing is expected to change until the spring, and the ECB will continue to buy government bonds from the anti-crime program, which has a total volume of EUR 1,850 billion.
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These huge amounts, beyond our imagination, keep eurozone government bond yields very low and detached from reality. At present, the Greeks borrow much more conveniently for ten years than the Czechs, who have a smaller total public debt.
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However, the reality is a little different. The ECB simply cannot raise interest rates because it would provoke an economic crisis that was several times greater than that of Greece in 2009. Repaying its own debts would be a problem not only for Greece, but also for Italy and France, countries whose economies are in very important in the euro area.
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In addition to rising oil prices, central banks seldom mention another reason for inflation, and that is the printing of new money. Their volume is growing dangerously fast, while the amount of services actually offered and goods produced in developed countries is declining. Banks are thus entering a dangerous spiral, where more and more new money will be needed to prevent the stock markets and economies of indebted countries from collapsing.
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The next economic crisis will be of a monetary nature, when these steps will be reflected in the weakening of the exchange rate of those currencies that have decided to solve the crisis by printing money. This will exacerbate the state of Western economies, as the weakening of currencies will widen the deficit between imports and exports. Inflation would then be even higher, and the question is how these economies would cope with the shock if interest rates rose sharply in percentage points.
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Repaying debts after the covid will be a very bitter pill that we will have to swallow next spring. A battle is now looming between the dollar, the euro and Asian currencies, led by the Chinese yuan. Strengthening Asian currencies would mean a partial victory for the continent over America and Europe. For ordinary citizens, this would be reflected in practice in an increase in the share of Asian tourists in our country, because we would become more affordable.
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