The European Central Bank’s governing council meets this week. Amid a less positive mood than before the summer break.
Spain must also be willing to help themselves: The recovery in Europe is losing speed and there are early signs of divergence. With some euro-zone countries rebounding faster than others especially Spain who are bringing up the rear.
ECB President Christine Lagarde still has several tricks up her sleeve to help the monetary union respond to the pandemic’s economic shock.
Although unlike previous crises in Europe, governments will have to take the lead this time.
Unfortunately, the response from individual countries is mixed so far. Some, like France, have already put together ambitious plans to relaunch their economy.
Others, such as Spain and Italy, are struggling to rise to the challenge.
The activity in the euro-area economy slowed down between July and August, according to the IHS Markit composite Purchasing Managers Index. Manufacturing remained relatively buoyant, but services stagnated, signalling a possible slowdown in domestic demand. The inflation rate also turned negative for the first time in four years. And core inflation, which strips more volatile items, fell to its lowest-ever level of 0.4%. There are also early signs of divergence. As the composite PMI for Germany and France showed an expansion, while that for Spain and Italy a contraction.
The ECB can do little about economic convergence, besides ensuring, as it is doing, that weaker countries do not face a risk of unwarranted financial instability.
Stronger countries, such as Germany and the Netherlands, must be ready to continue to support their economy and help their neighbours, as they are doing through the recovery fund. But states such as Italy and Spain must also be willing to help themselves. Just invoking the ECB’s help will not work this time.
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