Return of inflation gives Germany a cold sweat

“Inflation is eating away at our economies”, “this is how pensions melt”: the recent rise in prices in Europe, in a context of post-pandemic recovery, is making headlines in Germany, where monetary stability is a totem pole.

The statistical institute Destatis is due to unveil on Tuesday the level of the price index in June, expected at 2.1% by analysts at Factset, after an acceleration of 2.5% in May.

This slight downturn should be short-lived: according to the German Central Bank, inflation could reach almost 4% by the end of the year.

Both in Europe and the United States, this phenomenon is linked to cyclical effects, in particular the recovery of economies after the shock of the coronavirus, a rise in energy prices, or shortages in supply chains, upset by the health crisis.

But it is particularly worrying in Germany, where a stable and strong currency is synonymous with good economic health.

The country’s tabloids, such as BILD, and economic newspapers have multiplied the headlines in recent weeks, worrying about the impact of rising prices on savers.

” Time bomb “

At the beginning of June, a report from Deutsche Bank, the country’s leading bank, sounded the alarm, in a report backing up analyzes by central banks, which qualify the phenomenon as transitory.

The return of inflation is a “time bomb”, which could settle in “the long term”, because of the “rise in sovereign debts”, “even in Germany, which benefits from a credible fiscal policy », They affirmed.

According to the German Central Bank, the rise in prices is expected to subside by 2022 in the country.

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But “it is possible, under certain circumstances, that [l’inflation] wakes up and becomes a problem again ”, conceded its president, Jens Weidmann, on Monday, before a congress in Frankfurt.

Germany’s epidermal reaction to rising prices is no surprise: the memory of the hyperinflation of the 1920s is still lingering.

Ruined and indebted by the First World War, the young Weimar Republic had to turn the printing press, triggering between 1921 and 1924 a phenomenon of hyperinflation rarely equaled in history, deeply marking the conscience.

“After the war, this event was interpreted as an essential element of the rise to power of Nazism, even if this is not quite the historical reality”, commented to AFP Mark Spoerer, historian at the University. of Regensburg.

Elections

This hot topic could become an essential point of the public debate, in view of the next legislative elections, which must appoint, on September 26, a successor to Chancellor Angela Merkel who is leaving power after 16 years of reign.

The campaign will mainly see the conservatives (CDU), led by the Chancellor’s close friend, Armin Laschet, and the environmentalists (Grünen) of Annalena Baerbock.

The inflationary danger could “benefit the conservative parties, because the Greens will find it difficult to explain that their program will not fuel this phenomenon,” said Holger Schmieding, chief economist for the German bank Berenberg.

The Greens want adaptations to the strict rules, in order to invest against climate change and the modernization of the German economy.

On the contrary, the CDU remains committed to a return to strict budgetary discipline after the pandemic, making it possible to curb inflation.

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“Social peace in Europe requires a return to fiscal discipline,” the well-respected former finance minister Wolfgang Schäuble, currently speaker of parliament, has already said in a column to the Financial Times.

On the side of the Social Democrats, the current Minister of Finance, and head of the SPD list, Olaf Scholz insisted in early June that “it was a transitory phenomenon”, trying to calm concerns.

Berlin has spent lavishly since the start of the health crisis to support its businesses, putting aside its constitutional rules of budgetary austerity, which prevents the state from taking on more than 0.35% of its GDP.

In two years of health crisis, the country has contracted 370 billion euros in new debt, including 240 in 2021, and public debt has increased from 59.7% to 75.5% of its GDP.

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