European Central Bank Faced With Heightened Public Response

European Central Bank

Tensions are heightened. Officials in many European countries are faced with deescalating public response to the comments made by Mario Draghi, President of the European Central Bank (EUB). As head of the European Central Bank, Draghi spoke on Oct. 2, 2014 about how he plans to increase economic stimulus efforts, but his plans fell flat and left speculators wondering what plans he spoke of and if he had any definitive action steps.

Draghi said, European economic recovery for many of the 18 countries is “weak, fragile, and uneven.” The EUB press conference was mostly focused on the need to create economic stimulus in the form of asset purchases. It is known, all too well, by the European people, that a “stimulus” is known to dilute the value of the euro.

Already absorbing grave deflationary numbers, the euro has declined in value from $1.39, earlier this year, to $1.25. The European economy is also battling near-zero interest rates, 0.5 percent and extremely lenient monetary policy. As the euro value declines, inflation is at 0.3 percent and prices are starting to soar. As reported by ABC News, exporters are the only ones benefiting from a declining Euro, making prices of their goods cheaper in foreign markets.

The European Public wanted answers after the press conference. Dragi alluded to his plans, which he “summed up in, terms of next steps” caused emotions to heighten as the press, investors, and the public demanded more accountability and transparency about what was meant by his words.

Only recently has Draghi given the people what they wanted. He finally shared that he wants the ECB balance sheet to reflect 2012 levels and, in order to make this happen, the ECU needs to create up to $1 trillion ($1.26 trillion USD) in asset purchases, in the form of bonds and asset-backed securities (ABS), to revitalize the economy.

Although Draghi’s plans were originally not clear, Europeans understand that they can expect to see an increase in bond purchases that are scheduled to take place mid-October and in ABS which will start some time during the fourth quarter. The European Central Bank failed to originally disclose these details, which once released, did not appease the public and government officials soon found themselves faced with deescalating a heightened public response.

Reuters reports, protesters in Italy were most vocal. They are not accepting current monetary policy terms from the ECB. The European Central Bank  is now faced with heightened public response and opposition.

Many anti-austerity supporters rallied in Naples, Italy on Friday to demonstrate their discord with the policies of the European Central Bank. The Italian government is currently cutting spending – a decision demonstrators are completely against.

The protesters have many demands. With current economic conditions and this being the third recession in three years, Italian protesters want to severe ties from the European Central Bank. They want to see a reduction in unemployment and they want poverty conditions improved.

Reuters reports that  economic conditions in Italy are deeper than the 1929 depression. Many of the countries are faced with deflation. Draghi stated to the press that what is needed to stimulate the economy is more productivity. In reports by ABC News, a large part of the EUB plans are to lower the value of the euro by increasing exports and decreasing imports. This should create inflation in the European markets and provide the stimulus that is needed. It should also stimulate the economy in the eurozone and hopefully increase inflationary rates.

Police met demonstrators head-on in the streets with tear gas and water cannons. Italian law enforcement officials say that there were a few protesters that tried to climb police tanks and enter into the complex of the Palace of Capodimonte. Angela Merkel, German Chancellor leading member, has strong feelings about the work of Draghi. She said that Draghi is turning the ECB into a “junk bank” by purchasing bad assets that are not reforming. Much of Merkel’s comments added fuel to aid heightened public responses that the European Central Bank has been faced with much of this week.

By Carolette Wright

Seeking Alpha

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