The lack of an internal electricity market and the uneven growth of GDP are causing the disparities between Spain and its partners
The situation has completely changed. Until the summer, inflation in Spain was one of the highest in Europe, with an upward trend that started with the outbreak of war and peaked at 10.8% in July. From then on, prices began to rise more moderately compared to a year ago, and the rate for October was 7.3%.
Nothing to do with what happened in neighboring countries. Average inflation in the eurozone started the year at 5.1%, one point lower than in Spain, but has gradually risen month on month, reaching an all-time high of 10.7% in October. Countries such as the Netherlands (16.8%), Belgium (13.1%) and Italy (12.8%) lead the way with rates double those of Spain.
And we must not forget the efficiency of the monetary policy of the European Central Bank (ECB) with a gradual increase in interest rates – the latest on October 27–. The effectiveness of this measure in fighting inflation will depend on how banks apply this rate hike to their customers, both for loans and deposits.
In that sense, the professor of the European University criticizes the fact that said efficiency is very limited because the interest for depositors is not increased. He said the ECB’s policy is “very timid” at a time when 10% inflation needs to be fought, requiring a “much more vigorous” rate hike.
There are not only large differences in inflation between the various European countries, but also between Europe as a whole and the United States. The origin of the price hikes is very different as there is a very significant inflow of money in the United States as they are gas exporters impacting employment which is registering record levels. On the other hand, money is coming out in Europe, increasingly expensive energy is being bought and citizens are losing income due to price increases without raising salaries at the same level.
During a recent visit to Spain, the ECB’s Economics Director, Óscar Arce, pointed out the various elements that most distinguish the two continents. First, he stated that the European economy is “much more open” than the United States, so anything that happens in a global environment has a greater impact on it. For this reason, it is also “more sensitive to the serious bottlenecks that have occurred” since the pandemic. And on an energetic level, the difference becomes much clearer. Europe has a much greater energy dependency on foreign countries – especially Russia – than that of the United States.
Arce pointed out that demand from households and businesses — as well as investment — is also very different between Europe and the United States because of how each economic region has emerged from the pandemic. In Europe, pre-pandemic consumption levels had not recovered by mid-2022 and investment is still “well below 2019”, even with strong pressure from European funds. However, in terms of government spending, the eurozone has shown more dynamism, well above pre-pandemic levels, which is not seen with the same vigor in the United States.
In addition, on the salary level, the ECB director points out that there has been an acceleration in the eurozone over the past year due to “increased tension in the labor market” with the aim of regaining some purchasing power. inflation, with an average growth of 2.5% to 3%. On the other hand, in the United States the wage increase is around 7%, they are growing “much more intense”, which also drives up inflation.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
