ECB president Mario Draghi has blamed the programme countries, Ireland, Italy, Portugal and Spain for the flagging inflation rate in Europe that is raising the spectre of a Japanese-style lost decade.
Speaking at the ECB press conference following the decision not to cut the key interest rates any further, Mr Draghi said that the eurozone was entering into a prolonged period of low inflation.
“There is certainly going to be subdued inflation, low inflation for an extended, protracted period of time, but no deflation,” he said.
The ECB has set an inflation target for the eurozone of 2%. Draghi dubbed anything below 1% a “danger zone,” and vowed again to keep rates at present or lower levels to try increase inflation.
He said that unemployment and weak demand in the programme countries was the main cause for Europe not posting stronger inflation figures.
“A good part of the subdued performance of the core inflation is due to the very subdued performance of core inflation in the programme countries. Some of it is certainly part of a relative price adjustment, that is welcome.
“Some of it is probably due to the weakness of demand and the high levels of unemployment that are still much higher in the stress countries than in other parts of the union. We will with look with great attention to these developments because there is not a one clear-cut cause,” he said.
Despite the prolonged low inflation and the threat of deflation he said there is no similarity to the decade of no growth that Japan experienced in the 90s.
“We don’t see much of a similarity with what happened in Japan in the ’90s, early 2000s.
“If we look at what is the definition of deflation, that is a broad-based fall in price, self-feeding onto itself, happening in a variety of countries. And we don’t — we don’t see that,” he said.
He said that the ECB has a range of instruments ready to tackle the low levels of inflation should the need arise
During the press conference Mr Draghi was asked about the investigation by the ECB into the Irish Government’s €3.1bn swap of Anglo Bonds for long-term government bonds last year.
At the time the ECB had said that they had noted the transaction and refused to say any more.
Mr Draghi said that the council was still gathering information on what had happened.
“We are collecting all the necessary information and the assessment of the governing council will be known in due time after the completion of this monitoring exercise,” he said.
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