ECB’s Cipollone says monetary policy should let Euro zone economy run at potential

European Central Bank board member Piero Cipollone reported in Corriere della Sera (an Italian daily newspaper)

Article is here (in Italian).

My poor translation and summary (Google wouldn’t help out!) … if I got it wrong let me know in the comments (in English or Australian please 😉 )

1. Structural Crisis in European Industry:

   • Europe faces difficulties competing with China on manufacturing prices.
   • European industrial productivity lags behind the U.S., driven by gaps in technology and finance.
   • Over-reliance on external tech solutions (e.g., Big Tech from the U.S.) reduces the value-added by European firms.

2. Innovation and Scalability Deficits:

   • Europe is losing ground in innovation and scalability due to fragmented markets and a defensive, nationalistic approach.
   • This issue has persisted since the late 1990s with the rise of the internet and is now at risk of worsening with artificial intelligence.

3. Fragmented Internal Market:

   • The lack of a unified European market creates inefficiencies, equivalent to imposing a 44% tariff on goods and a 110% tariff on services within the EU.

4. Investment Deficit:

   • The eurozone saves more than it invests (a 3% current account surplus).
   • Investing this surplus could fund long-term economic growth and innovation.

5. ECB Economic Revisions:

   • GDP growth projections for the euro area have been revised down three times since June, with a cumulative reduction of nearly 1% for 2024–2026.
   • Uncertainty about U.S. trade policies under Donald Trump could further dampen investments and consumption.

6. Consumer Behavior:

   • Despite rising disposable income, consumption recovery has been slow due to cautious spending by households rebuilding savings after pandemic-related shocks.

7. Investment Weakness:

   • Private investments have declined and are projected to grow only marginally by 2026.
   • Public investments, such as recovery plans, are insufficient to counter weak private sector demand.

8. Monetary Policy Recommendations:

   • Cipollone advocates for monetary policy that supports the economy operating at its potential, rather than over-compensating for future inflation risks.
   • Suppressing demand to prevent inflationary shocks could erode long-term economic potential.
9. Rising Gas Prices:
   Gas prices for 2025 are forecast to be 25% higher than 2024 levels, potentially impacting medium- to long-term inflation.
   Updated forecasts in March 2025 will reassess these impacts.

This article was written by Eamonn Sheridan at www.forexlive.com.