Euro zone finance ministers in Athens are joined by their EU counterparts outside the single currency area with work to be done on signing off on the final details of banking union and preparing a common line for the upcoming G20/IMF meeting in Washington. The elephant in the room will be the threat of deflation.
European Central Bank number two Vitor Constancio said yesterday that low euro zone inflation was a concern but predicted it would rise in April, having dropped to just 0.5 percent in March. There are good reasons to think so but either way it suggests the ECB – which has its monthly policy meeting tomorrow – is in no hurry to act.
As EU economics chief Olli Rehn pointed out, it’s not all bad. Low prices will increase disposable incomes so could help a demand-led recovery. But they won’t help rebalance the currency area’s economy and will certainly make still-high national debts harder to pay off.
The key will be if consumers and businesses start deferring spending decisions in the expectations that things will get cheaper. That is when deflation becomes a profound risk and the ECB insists it sees no sign of that.
One of the highlights today in Athens will be a news conference with ECB Governing Council member and Bundesbank President Jens Weidmann and German finance minister Wolfgang Schaeuble.