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ECONOMY

ECB celebrates 10th anniversary in Frankfurt

European finance and political chiefs toasted on Monday the European Central Bank's tenth anniversary even as record inflation cast a pall over the party.

Published: 2 June 2008 13:13 CEST
ECB celebrates 10th anniversary in Frankfurt
A hungry visitor at the ECB on Sunday. Photo: DPA

German Chancellor Angela Merkel and top European Union officials gathered near the bank’s home in Frankfurt for a gala celebration of the ECB’s success in its first decade.

Confounding early critics who doubted the ECB and the euro would survive, the bank has matured into what is now widely respected as one of the leading forces in global finance.

ECB president Jean-Claude Trichet told his guests: “I don’t intend to name and shame those who said that Europe’s single currency would be impossible, or that its introduction would be a failure.”

Instead, he stressed that “Europeans have achieved what was deemed impossible, what had never been tried.”

Earlier in the day, the International Monetary Fund hailed the ECB for its actions during the most recent trial by fire, when the US market for high-risk, or subprime mortgages collapsed in August and money markets dried up almost overnight.

“The ECB’s liquidity management has been timely and proactive and the flexible framework has proven a crucial stabilizer during the turmoil,” the IMF said in a report.

Amid the eulogies and revelling however, the ECB faced what could be its toughest challenge yet – curbing inflation that was clocked in May at a record 3.6 percent, far above the bank’s target of just below 2.0 percent.

“We know that our fellow citizens are asking us to deliver price stability,” Trichet told a ceremony at Frankfurt’s old Opera house. “We also know that price stability is a prerequisite for financial stability, a very important objective at the current juncture.”

Founded on June 1, 1998 with a mandate to keep inflation in check, from the start the ECB has strived to prevent inflation from getting out of hand. The ECB’s quest has often pitted it against critics, led by France, who claim its obsession with ensuring stable prices distracts it from cutting interest rates to boost growth.

Backed by others such as Austria, Germany and the Netherlands, the ECB has steadfastly rejected such criticism and remained true to its mandate. Nonetheless, many euro-zone residents blame the euro for higher prices, saying the cost of everyday items from petrol to beer has shot up.

Despite pressure growing on policymakers to provide relief, euro-zone finance ministers had few answers Monday to the problem. “I think we have to get used to a world of high oil prices,” said Finance Minister Wouter Bos of the Netherlands.

Jean-Claude Juncker, head of the Eurogroup of finance ministers agreed, but added: “We need to think about how we can ease the burden on the most vulnerable.”

The IMF warned that “rising commodity and food prices will cut into consumption,” which governments had hoped would underpin growth as exports were hit by the euro’s rise against other major currencies.

The single currency was another of the ECB’s biggest early challenges as it introduced the euro, first as an accounting unit in 1999 and then in notes and coins in 2002.

The bank then had to hang on as the currency swung in value against the dollar from an all-time low of $0.8230 in October 2000 to a record high of $1.6011 this April.

Looking ahead, Trichet said the ECB faced three principle challenges – “rapid technological progress, globalisation in all its dimensions, including the transformation of global finance, and population ageing.” It also had work “to extend progressively the euro area across the European Union as a whole,” he added.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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