The international economy is slowing down or growing at a negative pace. One of the reasons is the prolongation of the war in Ukraine. All the modest predictions are based on the assumption that the war will end in a few weeks, while it seems that it may last for months or even years. Russia’s “walk” is evolving into a regular war between two states, with the West unanimously supporting Ukraine, with an unknown duration, a certain result, an indefinite degree of escalation.
The second cause is the spread of the pandemic in China. “Working together to protect human life and health. Without them, there is no human development,” said Chinese President Xi Jinping ahead of the CCP summit, taking responsibility for a policy of austerity in 70 major cities. China, without ruling out the possibility of Beijing being in them tomorrow.
A third reason is the tightening of monetary policy, with the gradual reduction of the amount of new money issued by the major central banks and the gradual rise in interest rates to tackle inflation, which is a record for the last 50 years. If it is really treated this way, it is an issue on which there are lively disagreements. If the hard core of the problem is not caused by excessive demand, but caused by structural problems in the energy sector, the closure of power plants due to a pandemic, the interruption of power supply due to war, then what can the rise in interest rates offer?
And especially in Europe, if the anemic recovery worsens due to the prolongation of the war, what does the rise in interest rates help, since in such a case the European economy will lead to a recession. The central banks are called upon to solve the problems that were previously called upon democratically and consensually to deal with the issuance of abundant money through quantitative easing programs, in order to deal with the financial crisis first, and in two years, the pandemic crisis.
But their “weapons” are limited. They can become dangerous in such a macroeconomic environment. In order to deal with classical monetarist policies, inflation of 6% or 8% will have to raise interest rates sharply to a level that will destroy demand and lead to the inability to service all types of debt, including those caused by pandemics. , companies, but also states. Who are the ones who will do it and take responsibility. And if they do, are we sure we want to curb inflation by fueling the recession and unemployment? not enough of what already refers today to interwar Europe. The EU is unable to make quick decisions and developments are very likely to overtake it, forcing it to run panting behind them.
