ECB signals European economic fragility. No more restrictions in monetary policy?

We first present the ECB statement, then make the comments

According to the November 2023 Financial Stability Review, which was published today by the European Central Bank (ECB), the outlook for euro area financial stability remains fragile, as tighter financial conditions are increasingly propagating to the real economy in an environment of weak growth, high inflation and heightened geopolitical tensions.

“The weak economic outlook along with the consequences of high inflation are straining the ability of people, firms, and governments to service their debt,” said ECB Vice-President Luis de Guindos. “It is critical that we remain vigilant as the economy transitions to an environment of higher interest rates coupled with growing uncertainties and geopolitical tensions.”

Financial markets and non-bank financial institutions remain highly sensitive to further negative developments and their vulnerabilities could be exposed to downside surprises in economic conditions. At the same time, investment funds and other non-bank financial institutions remain vulnerable to liquidity, credit, and leverage risks. This highlights the need to strengthen their resilience from a macroprudential perspective.

The meaning

What does all this mean? The ECB is beginning to realise that the economic and financial situation caused by the Commission’s raising of rates and the famous ‘Ambitious Objectives’ is going badly, turning south, and that therefore a crisis is just around the corner, and this will involve the banking system.

This communiqué highlight the high ‘Fragility’ and ‘Market Sensitivity’ in Europe, which, by the way, comes after the Karlsruhe Constitutional Court gave a sharp cut to German hidden public spending and the use of off-budget ‘Special Funds’.

We don’t expect further monetary restrictions,  in view of the latest inflation figures. It is not impossible that we might even see a softening of the ECB’s banking policy over the next six months, provided inflation does not show any sudden flare-ups.

Will all this help the European economy grow? No, it won’t, because at the root of it all is the absence of a coherent fiscal and industrial policy, all due to the cumbersome ‘Economic Stability’ rules imposed by the European treaties, which, by the way, will be active again from January the first, and the bureaucratic monster that now shackles European countries.

The NextgenEU? Sham fund, which will do nothing practical for economic growth. Pure smoke and mirrors.

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