There ECB is preparing for the second cut of rates in September, while the risks to growth prospectsin parallel with the reduction of those related to inflation. This was confirmed Piero Cipollone(Italian) member of the Board of the Frankfurt Institute, amplifying the markets’ concerns.
The European stock exchangesas well as the American one, are recording a strong correction these days, after PMI manufacturing and services indexes confirmed the possibility of a recession. An indication that made Wall Street slide by 2% and Tokyo by 4%, while European stock markets show losses of up to 1%.
Growth slows down
Cipollone confirmed that there Eurozone growth is slowing and for this ECB to announce further rate cut at the next meeting in September, while the risk that monetary policy you remain too restrictive It is not to be underestimated. This is what Piero Cipollone, member of the Executive Board of the ECB, stated in an interview with Le Monde.
Asked whether the ECB is not afraid of “stifle economic growth”, keeping interest rates too high for too long, the banker responded that there is “a risk to the outlook of growth of the Euro area”, while the Inflation projections suggest that “we are essentially on the right track“to reach the 2% target in the second half of 2025”. The ECB representative instead denied the existence of a “wage-price spiral”explaining that the wage growth we have seen is “a natural recovery that is healthy for the economy.”
“Our main concern is productivity“, Cipollone recalled, reiterating “our companies do not invest as much as in the United States, especially in new technologies”. In Europe – he added – there is “a structural problem” because “we are not making the most of our fundamental resource: the European single market”.
ECB too restrictive?
Onion he did not want to give any indication on the number of cuts to be carried out within the year, but nand confirmed at least one in September. “We are not committing ourselves in advance to any path. We will take our decisions meeting by meeting,” the ECB member reiterated, adding “the data so far confirms our direction of travel and I hope that it will allow us to continue to be less restrictive.”
Echoing a statement by his colleague Philip Lane, the banker acknowledged that “there is a real risk that our position could become too restrictive“, since in Europe “we desperately need investment and growth” and therefore “any delay in this area puts us at a serious disadvantage”.
High Debt Puts Sovereignty at Risk
Talking about the new Stability PactCipollone explained that the new rules “are compatible with the maintenance of public investments. They include incentives to implement reforms and invest, allowing to extend the fiscal adjustment period from four to seven years”. However “we must be aware of the size of the debt” – he admitted – and therefore “when you have too much debt, your sovereignty is at risk”.
Speaking about the possibility of resorting to the European public debtthe banker said “we need both private and public investment. And in both cases, it has to be on a European scale. First, because these are investments that will benefit all Europeans, and second, because doing it at a European level reduces financing costs”. However, it is necessary “develop truly European capital markets and one common lending capacity.
