What are the ECB and Draghi Scared Of?

The European Central Bank (ECB) is at the forefront of his responsibilities with a boss –Mr Draghi- who exercises his authority and harmonises the various sensitivities of the Council, including those of a German discipline.

Even though the ECB’s policy pretends to be predictable and doesn’t want to surprise with a sudden show of audacity, last week the central bank was less predictable –especially with its next-to-last cut in interest rates (there is just one more cut left, because negative rates would imply a ‘counterproductive desperation’).

It isn’t clear whether this last cut shows fear of deflation, determination to boost recovery or concerns about the strength of the euro… Maybe it’s all at the same time. It is likely that the ECB is looking for limited or relative effects –a medicine of sorts that does no harm, but has a placebo effect and doesn’t really heal the patient.

From the Spanish perspective, weakening the euro is good news because it helps to sustain export figures, which avoid recession. The cut in interest rates also helps to reduce the debt (this being one the most crucial tasks), while at the same time avoids an increase in default that could lead to new bank bailouts.

Another aspect is the recovery of the credit demanded by those unable to reactivate it. However, reactivating the credit requires time and serenity, as well as previously solving other problems. It is as if one asked for rain when there were no clouds around.

Mario Draghi alluded to the “disinflation” in order to abstain from saying “deflation.” After all, deflation is a good argument for containing those who fear the inflation and are tougher with adjustment measures. It is true that the European prices (CPI) are at a low, although there are symptoms of asset inflation, which are not measured by the CPI and are raising some alarms on this matter.

Draghi’s ECB is active regarding the fight against recession and the defence of the euro zone, besides its credibility has increased lately. So, what do Mr Draghi and the ECB fear? They should be worried about the stagnation, which is an exit strategy like that of a snake: crawling on the ground.