The ECB and its implementing monetary policies have so far saved the Eurozone economy. The effectiveness of the policies implemented by the ECB, the almost zero basic euro-borrowing rate and the continued implementation of QE for the creation of artificial growth which will in turn cause inflationary pressures, have been exhausted until now due to a lack of common applied fiscal, economic and tax policy.
by Thanos S. Chonthrogiannis-https://www.liberalglobe.com
The inadequacy of the economic policies to date in the Eurozone
The fact that the ECB announced a new round of low borrowing cost loans at its meeting last March through the exercise of an expansive monetary policy (continuation of the implementation of the Quantitative Easing (QE) policy) by providing ample liquidity to the Eurozone to climb prices, it means that the Eurozone and the ECB have no alternative to existing data due to the Commission’s general inaction.
These ECB policies will continue to be implemented until the Commission and generally the governments of the Eurozone member-countries wake up to the slumber.
The ECB ‘s recent report on the stability of the financial sector in the Eurozone https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr 201905~266e856634.en.html#toc3 showed us that growth in the Eurozone will continue to move at the same anemic levels in the near future.
More specifically, the continued implementation of the QE in the Eurozone in combination with the maintenance of the almost zero basic euro borrowing rate, would block the Eurozone in the same situation that Japan found in the decade of 1990 where the Japan tried to support its banking system with gigantic injections of liquidity and with the policy of zero interest rates (1995) leading to the well- known “lost decades” for the Japanese economy.
Photo by Author: European Commission, licensed public domain,
Source: https://ec.europa.eu/
The appropriate solution for the Eurozone economy to detach from this quagmire
The Commission, in cooperation with the leaderships of the governments of the Eurozone member countries and by extension of the EU, will have to agree on a new revised Stability and Growth Pact (November, 2011) (Source׃ EU, http://ec.europa.eu/economy-finance/economic_governance/ sgp/index.el.htm, 3/8/2015).
This revised Stability and Growth Pact will explicitly include that the primary expenditure of the public sector in the annual state budgets of the central governments of Eurozone member countries should never exceed a total of 15% of their GDP per annum, with 4% of GDP from this 15% of GDP being total wage and pension expenditure in the public sector.
The reader who wants to have a full picture of the proposed development policy that will lead to an explosive growth in the Eurozone while allowing the implementation of a common fiscal, tax and economic policy in the Eurozone should read our analyses entitled «The Sustainable Solution for the Eurozone Economy-Part I, II, III, IV” category: fiscal, published in liberalglobe.com.
The implementation of this centrally designed fiscal policy immediately disappears any budget deficit in the annual budgets of the central and general governments of the Eurozone member countries, as well as all other factors that make up the overall budget of the general government are showing balanced budgets.
In addition, it is possible to implement a common fiscal, tax and economic policy across the Euro area, which will allow the ECB to issue T-bills and bonds for all durations of the euro yield curve.
At the same time, huge resources are being released from state budgets which should, through equivalent value of drastic tax reductions-measures and tax exemptions, be directed towards the citizens of the member countries of Eurozone and to citizens belonging to the lower- and middle-income scale.
This will drastically increase consumption and/or savings in the Eurozone by exerting real inflationary pressures that will force the ECB to drastically increase its borrowing rates in order to curb inflation in the Eurozone which in this case will try to exceed its 2% annual limit.
Of course, in this case, the QE strategy should be fully suspended, and the ECB will “detach” itself from the strategy of almost zero-euro basic borrowing rate.
We hope that the composition of the new European Parliament and the Commission will reflects the wave of the Alliance of Liberals and Democrats (ALDE) and the cooperating Party of Emmanuel Macron to those who have won important number of seats in the recent European elections, to implement such policies that will detach the Eurozone economy from the ‘development twilight ‘ zone.
Thanos S. Chonthrogiannis
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