In Europe, they don’t just let inflation drift, they fuel it. Ironically, these days when all the politicians on TV are promising to fight them. The explosive thing: European politicians and central bank governors know what they are doing.
Galloping inflation and global warming have one thing in common: neither comes over us like a force of nature. Both are made by human hands. It’s man-made, as they always say at climate conferences.
Only the climate catastrophe, and that’s where the difference begins, is fought with united forces. Presidents and Nobel Prize winners, business leaders and a dozen international conferences have ensured that the decarbonization of Western economies is a done deal. War and the explosion in energy prices can delay things, but not stop them.
Inflation takes a different path. In Europe, they don’t just let them drift, they cheer them on. In these days, when all the politicians on TV are promising to fight inflation, the next big boost is in fact being prepared.
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Without a coordinated defense – that’s what all currently available data says – we have entered a decade of exorbitant currency depreciation, which will please the debtor and for all other citizens will mean noticeable, even painful, losses in prosperity.
Many companies, and those that cannot pass the effects of inflation on to their customers, will not survive this decade. Inflation will first crush their profits – and then wipe them out.
In this fateful hour, we must not accuse European politicians and central bank governors of ignorance: they know what they are doing.
1. The German state, which promises everyone everything in social policy, sets a bad example. The debt brake of the Basic Law is circumvented by borrowing outside the federal budget. Unofficial debt now exceeds official borrowing by more than five times.
The state subsidization of energy prices is not the last coup, but the most powerful so far. 200 billion euros and thus 1.5 times all DAX profits in the pre-crisis year 2021 are available for this consumptive issue. The money is not invested in a green future technology, but burned in the truest sense of the word.
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2. The bad example is contagious to the rest of Europe, who are now insisting on equality. The continent faces a new debt orgy; On the fringes of the EU summit in Prague, Scholz signaled his openness to joint borrowing for the whole of Europe, as Bloomberg claims to have learned exclusively from the chancellor’s environment.
The Chancellery flatly denied it with the words “nothing is known of such plans”. The truth is: Germany is helping to stabilize the high price level with its state gas price brake, which is causing outrage in Italy, Sweden and elsewhere.
German aid as a loan guarantor and thus as a lender of last resort for the capital market – as already happened in the case of the Corona reconstruction program – fits in with the previous checkbook diplomacy in Europe.
3. The ECB is no longer inclined to continue a tighter interest rate policy during the recession. At the next meeting of the ECB Executive Board, another rate hike is likely.
But for the coming year, when the effects of the recession, the winter and the explosion in energy prices will be felt by everyone, important forces in the central bank’s management circle no longer want to fight inflation but rather the recession.
The historical experience that in the end you get both inflation and recession cannot slow down the southerners in their ambition to start the money printing machine again.
They want to inflate their debt and definitely don’t want to adjust their spending behavior to actual income. You see the ECB Tower in Frankfurt as an oversized ATM.
4. Workers’ representatives across Europe will soon be making their contribution to price inflation. That’s what their members expect. Just yesterday, the Verdi union and the civil servants’ association called for 10.5 percent more income for federal and local employees. IG Metall will enter the collective bargaining round with an 8 percent demand.
Companies are now also counting on significantly rising wages. In view of this historically high rate of currency devaluation, there is absolutely no ethical justification for refusing this compensation payment to the working population of all people.
The so-called second-round effect is as certain as amen in church. Any union leader who calls for moderation now is risking his job.
High wages, and therein lies the problem, dampen the impact of current inflation on individuals, thereby driving up future inflation. Prices drive wages, and wages drive prices. These are precisely the ingredients for long-lasting inflation.
5. With high interest rates alone, which makes the situation in Europe even more complicated, the currency devaluation cannot be stopped at the moment. Because unlike in the US – where the state drove up inflation with its almost two trillion dollar stimulus program – in Europe it is the supply side that is causing the price hikes – i.e. a lack of energy and broken supply chains.
Prof. Lars Feld says: “The industry either doesn’t produce because the energy is too expensive or it can’t produce because the parts are missing and there are still supply chain problems.” That means: Inflationary pressure is increasing because the Supply cannot at all expand into the state-increased demand.
6. The climate protection movement always says: Follow the Science. This is by no means the case when it comes to fighting inflation. Political calculation rules here, the voice of economists is considered to be rather annoying.
The surprisingly downward inflation forecast for 2023 by Economics Minister Habeck yesterday is based on the rosy acceptance of laws that have not yet been passed and is being carried out against the advice of all economic research institutes. They expect inflation to continue to rise. Habeck against the rest of the world.
Conclusion: This policy is short-sighted, not sustainable. The state does not want to eliminate our suffering from the present, only to anesthetize it. The savior appears as the culprit and prepares the wave of inflation that he claims to eliminate. Next to us the deluge.
Gabor Steingart is one of the best-known journalists in the country. He publishes the newsletter The Pioneer Briefing. The podcast of the same name is Germany’s leading daily podcast for politics and business. Since May 2020, Steingart has been working with his editorial staff on the ship “The Pioneer One”. Before founding Media Pioneer, Steingart was, among other things, Chairman of the Management Board of the Handelsblatt Media Group. You can subscribe to his free newsletter here.
