Currency war against European citizens

European Central Bank officials recently came to the press with statements questioning the "truth value" of the declarations made by the institution's president, Christine Lagarde.

At press conferences held after the monetary policy meetings in recent months, Ms Lagarde almost invariably faced questions about the bank's actions regarding the euro exchange rate.

The answer was always the same: the ECB does not target the exchange rate.

It seems that the recent strengthening of the euro has at least led to the changing of some opinions within the institution, even if the open actions for the weakening of the Euro are still pending, as they run the risk of fueling escalation of the global currency wars.

Currency warfare, also known as 'competitive depreciation', presupposes the existence of successive stages of depreciation of national currencies between trading partners, so that exchange rates are favorable to domestic producers.

In a recent interview with Bloomberg TV, Klaas Knot, governor of the National Bank of the Netherlands and member of the ECB Board of Governors, said that the bank has all the available instruments, including new cuts of policy rates, to prevent the Euro from continuing to strengthen.

According to Knot, the appreciation of the euro has an important role to play in "undermining inflation", i.e. keeping it well below the ECB's target of around 2%.

The statement of the ECB official has led to the significant weakening of the Euro against the Dollar, from about 1.217 USD/EUR to 1.206 USD/EUR.

Bloomberg writes that the strengthening of the Euro against the dollar by almost 9% in the last year "places puts pressure on inflation by reducing import prices and can slow economic growth by lowering export competitiveness".

Bloomberg writes that the appreciation of the euro against the dollar by almost 9% in the last year "puts pressure on inflation by reducing import prices and can slow economic growth by lowering the competitiveness of exports".

For Ulrich Leuchtmann, head of FX research at Commerzbank, Governor Knot's remarks can be interpreted "only as a de facto statement of the currency war".

In his opinion, "there is no excuse for manipulating the euro-dollar exchange rate, at least not from a central bank that has promised exactly the opposite", especially since "such behavior can generate responses from other central banks and can lead to to a currency war ".

Klaas Knot's position is also backed by Olli Rehn, the governor of the National Bank of Finland, who also told Bloomberg that "we are monitoring exchange rate developments, especially for the inflation outlook," and "the ECB is ready to use all instruments to stimulate inflation".

Wasn't the "wise handling" of the pandemic by the authorities in Brussels and other European capitals enough? Should citizens now "enjoy" the permanent erosion of purchasing power as well?

Spanish economist Daniel Lacalle recently described the true nature of currency wars, which are based on "the myth that devaluation helps competitiveness".

In actuality, "currency devaluation is not a tool to stimulate exports, but a tool to destroy the purchasing power of wages and the savings of the population, which benefits low-productivity economic sectors and governments", according to Lacalle.

All those who propose measures to depreciate a currency, regardless of "pious" motives, are only promoting "a currency war against their own citizens", given that "currency depreciation is only a tool to disguise structural imbalances, which always has greater negative consequences than positive ones".

The Spanish economist also points out that "a currency war will devastate the purchasing power of wages and lead to the suppression of investment and consumption decisions in the economy".

But all of that doesn't seem to matter to the ECB.

Against the background of this "wise" monetary policy, the European Commission is busy showing us the "benefits" of centralized planning in other areas as well, such as the allocation the anti-Covid vaccine doses.

In an article called "Vaccination Disaster in Europe", renowned German professor Hans-Werner Sinn writes that this is the result of "the decision to hand over to the European Commission the coordination of the process".

"There was no legal basis and no economic justification for centralized planning," Professor Sinn said in an article on the Project Syndicate website.

The German professor's conclusion is that "the disaster was determined by the centralized planning and lobbying of vaccine manufacturers", and now "Europeans have to bear the consequences of an avoidable tragedy".

We can only imagine where the European Union will end up when the EC moves directly to economic planning built around the "green" desideratum.

Shortly after the publication of Hans-Werner Sinn's article, the European press began to provide information about the open conflict between the EU and the United Kingdom over the allocation of vaccines produced by AstraZeneca.

"Brussels wants the British to die so that the Europeans can live," wrote Ambrose Evans-Pritchard in The Telegraph, amid the imperative tone of European Commission President Ursula von der Leyen, when speaking of the transfer of 75 million vaccine doses to EU countries.

In Evans-Pritchard's opinion, "AstraZeneca is the scapegoat for the European Commission's astonishing institutional failure". The conflict between Britain and the EU can easily get out of hand, and the consequences can be particularly serious for the so-called European Project, especially given that "Germany is feverishly looking for a culprit for not being able to get more vaccine from its own manufacturer, BioNTech ".

According to the British journalist, the delay in the vaccination process will have very serious economic effects, especially in terms of the evolution of sovereign debt, the solvency of small and medium-sized enterprises and the labor market.

By weakening the single currency, even if the main trading partners look away for a while and do not retaliate, the ECB will not solve these problems, but will amplify them instead.

And a currency war against European citizens will also remove the illusion of recovery by "unleashing" the so-called "repressed demand", considered inevitable after the removal of restrictions imposed by the authorities on economic activity and free movement of people.