Ignatius fisco He has served as Governor of the Bank of Italy without any personal controversy. He will not fall for it now that his second term is coming to an end. But if there was something that made him angry, it must have been The interview published by the Governor of the Bank of Austria, Robert Holzmann, in the German newspaper “Handelsblatt” on Monday..
In other words, Holzmann sought to maximize influence in the roughly final hours that ECB Governing Council members, before next week’s sensitive meeting, are allowed to speak. It seems that the Austrian central bank almost came out to give direction of travel before silence fell on pending decisions. And he did it without nuance: his Three consecutive 50-point (0.50%) interest rate increases are needed in addition to the March 16 discounted interest rate hike.. It doesn’t matter much that the ECB is already on the fastest streak of hikes in its history, up 300 points (3%) since July.
To those who spoke to Fiesco it seemed clear that it was not his quarrel over merits that bothered him.. What the governor does not accept is what he himself must have experienced as a violation of the agreements made between the governors of European central banks. In the Governing Council, the deal is what President Christine Lagarde has been explaining since last autumn (except sometimes forgetting): The ECB these days never ties its hands announcing its future moves in advance, before seeing the data. There is too much fog around the impact of the war, on the prices of raw materials, on the stability of the economy or on corporate profits to determine the months and months of future options.
With inflation remaining at 8.5% in the eurozone and the economy holding up so far better than expected, It is inevitable that interest rates will continue to rise (Today’s prime refinancing rates are at 3%). Even after this month. But every decision must be made by meeting, on the basis of the clues that will arrive. At least that was the deal. Holzman, speaking in the opposite sense, gave the impression that he was trying to stir up market expectations: precisely to create a fait accompli and pave the way for new increases.
Then there is the merit of course. Many central bankers in northern Europe are wary of demands for double-digit wage increases, which raises fears of starting a downward spiral between prices and wages. In the real world it has not yet been seen. But for Visco, behind the idea of forcing rapid rate increases on autopilot is the idea of triggering a (avoidable) recession in the eurozone, in order to keep wages in check, leading to unemployment.
theThe Governor of the Bank of Italy believes that there are more accurate and effective ways to bring inflation back to 2% in the medium term., which is a priority anyway. First, the ECB’s forecasts already set inflation on target for mid-2025: so in Frankfurt we can afford to slow down and wait and see. But above all, it is necessary to ensure that companies do not increase their profits by fueling inflation in an inappropriate way: the prices of many commodities increased in 2021 and 2022 to pass on most of the increases in the prices of raw materials to consumers. But now, for example, gas has reduced its price nine times, which means that some unchanged price lists mean a significant increase in profit margins for companies. Certainly, the eurozone is too complex to contain inflation with successful experiments such as Income policy of Carlo Azeglio Ciampi since 1992 in Italy. But a wider and finer view, for Visco, wouldn’t hurt so much.
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Borsa Italiana, commentary of the March 21, 2023 hearing