Friday, March 10, 2023, 00:34
There was a time not so long ago when the abyss did not look up, but down. The vertigo was not in heaven, but in hell. If now the ‘up, up and up’ dominates, not so long ago the ‘down, down and down’ prevailed. Seven years ago on a day like today, on March 10, 2016, ‘Super Mario’, the then president of the European Central Bank (ECB) championed the historic decision to lower interest rates to 0% to try to revive an economy in eat. Yes, yes, at 0%! “There are no limits, we will not give up. The rates will continue at these levels or lower for a prolonged period of time, ”Mario Draghi proclaimed with that pause and forcefulness that characterized the Italian. That phrase was prophetic. So much so that it was not until July 22, 2022 when his successor, Christine Lagarde, decided to change the rules of the game by drawing a spiral of rate hikes that does not seem to have an end. They were six years of free money, capital injections, massive purchases of public debt…
There was a time not so long ago when the ECB’s ‘money-making machine’ was fuming to try because inflation was moribund and growth was negligible. On that historic day that stands out in the annals of the ECB, the Governing Council, in addition to approving more liquidity injections, revised the inflation forecast in the Eurozone for 2016, lowering it from 1% to 0.1%. But it is that in February of that year it closed at -0.2%. Now, true things, it is at 8.5%.
To understand how the ECB works, it is essential, key, to start from a premise: what its mandate says. And what does it say? That inflation must be below but close to 2% and do so in a sustained manner. Nothing about reaching the goal a specific month and then start whistling. Hence the current obsession of Lagarde’s team to “do whatever it takes” to lower 8.5% at all costs. “Inflation is a monster that we will hit until we reach 2%,” he warned last Sunday in EL CORREO, in the first interview he gave to a Spanish newspaper since he became president of the ECB on November 1, 2019.
Putin’s war
Just seven years ago, the situation was radically different. It was about coddling and feeding the monster, not hitting it. Mario Draghi became the ‘good cop’ of ordinary Europeans, of those people who had contracted a variable mortgage and saw how the Euribor ceased to be a concern in their lives. The ‘paradise’ lasted six years, until Vladimir Putin decided to declare a war at the gates of Europe. Everything broke.
The costs of energy and raw materials skyrocketed… And the ECB, following its mandate to the letter, decided to turn its policy 180 degrees. From completely free ‘paradise’ to Euribor hell. From that Draghi in ‘good cop’ mode to the current Lagarde in his role as ‘bad cop’. Interest rates, now at 3%, will continue to rise. On Thursday, March 16, the ECB will raise them to 3.5%, levels not known since that nightmare called the ‘fall of Lehman Brothers’ that began fifteen years ago. And no, it will not be the last climb. How far will they go? It is the great unknown for which not even the ECB has an answer.