Lagarde and Draghi: train crash at Davos

Lagarde and Draghi<p>Lagarde and Draghi</p>

Last Saturday’s closing of Global Economic Forum at Swiss city of Davos was starred by Lagarde and Draghi’s comments on the euro zone deflation risks, two of the three Troika’s members, which is the body created to lead bailed-out Greece, Portugal, Ireland and Spain`s economic stabilisation. At her turn to speak, IMF’s head warned that regional inflation, at 0.8%, remained “way below” the 2% target set by the European Central Bank. Draghi’s responded that ECB could act against an hypothetical deflation by means of a Quantitive Easing policy including direct acquisition to entities of households and corporate loans packages.

Central bank’s president admitted the action would involve opening previously a market with liquidity enough for this kind of assets. He also pointed out the strategy might be applied in the case deflation became a real threat and as a consequence euro zone economic situation deteriorated. Nevertheless, Draghi said risk of deflation in the region not to be “very high”.“This mean that ECB’s president can consider the deflation to be just high”, according to Spanish Bankinter’s analysts. “Now euro area inflation stands at 0.8%, when long term goal is 2%. It is possible that Draghi is trying to manage his message appropriately in order to favour a credit demand that does not react at the moment, by reassuring banks to relax their credit conditions. If the ECB itself is poised to buy loans, then they may provide families and companies with credit…”, experts add.

Furthermore, Lagarde also said at Davos that failures for banking reforms and re-balance economies have already become old risks. New risks would include not only inflation in those countries with a rate below target but also emerging economies development.

About the Author

Julia Pastor
Julia Pastor has broad experience in business writing for Consejeros Media Group at Consejeros, Consenso del Mercado and The Corner. Previously, she worked for the financial news agency GBA and contributed to El País Business. She holds a Master's in Financial Journalism and a degree in English from the Complutense University in Madrid.

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