Ignacio Marco-Gardoqui: What is this about?




Germans have always feared inflation. At least since the Weimar republic that burned in the embers of prices and whose failure opened the door to the Nazis. For this reason, when the stability criteria for access to the euro and the creation of the European Central Bank were established, inflation was one of the thermometers that measured the orthodoxy necessary to enter and stay within the club. The limit set by the ECB 18 years ago, 2% inflation, was considered demanding and it was at the beginning. But it has been many years since the sum of globalization, technological deflation and a series of almost chain crises have driven away the obsession with price stability.

A situation that has allowed the massive indebtedness of individuals, companies and, above all, administrations that have seen how the debt burden decreased despite the fact that the volume of indebtedness rose without stopping. Once I conveyed my concern about over-indebtedness to a well-known corporate finance expert, he responded undaunted: “Don’t be silly, debts are not paid today, they pay off.” I was stunned, I thought he was quite right and I was about to ask my university for a refund of the part of the tuition corresponding to what they taught us about it. That so beautiful that debts were honored with their repayment at maturity. What strange times, what exotic customs!

The president of the ECB assures that it no longer makes sense to be rigid and that it is convenient to make the objective more flexible because nothing happens if the limit is exceeded temporarily. He prefers to maintain financial support for an economy like the European one, which has not just taken off and is struggling to keep up with China and the US. The justification is compelling. But, I don’t know. Rather, I suspect that the debt situation of public administrations is so dire that their budgets would not bear the extra burden of higher rates. That is why it is a top priority to guarantee the states an abundant and cheap flow of financing to avoid the ‘seizure’ of the machinery. If the idea is true or is the result of an excess of suspicion we will be able to verify it soon. As soon as the pandemic passes, fiscal consolidation plans will have to be made. We’ll see if your pace is slow or frantic.

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