Is there deflation at Emory University

The end of austerity in Europe?

Nobody was prepared for this and when Mario Draghi added a few new lines to his speech at short notice, it took days for them to have an impact in public.

At the traditional central bankers' meeting in Jackson Hole in the United States last Friday, the head of the European Central Bank (ECB) said that he considered the situation in Europe to be more serious than previously assumed: "With all available means" the ECB will reduce inflation heat up in the euro countries, he said.

The massive purchase of securities by the ECB, which has so far only been discussed theoretically, could soon become a reality. Which means nothing other than that Draghi could turn on the money press if the central bank missed its inflation targets. And that's what Draghi is currently assuming.

The ECB is not only looking at the euro

Inflation expectations in the euro zone have been falling for weeks. Many experts look to the end of the week with concern, when the European statistical agency Eurostat will publish inflation data for August.

In July, prices in the euro zone rose by just 0.4 percent. According to forecasts, inflation is expected to fall further in August. The annual inflation target of two percent would have become a long way off.

The danger for Europe now is that prices could even fall. In the so-called deflation, consumers hold back on consumption and companies hold back on investments because they expect steadily falling prices.

Poaching in unfamiliar areas

In Jackson Hole, Draghi not only spoke about the monetary policy of the ECB, but also ventured into areas that are not actually part of the core competency of a central banker.

Above all, he sees a duty on the European governments to ensure more growth. And not just through structural reforms, but - and this is actually the new thing from Draghi's mouth - through its fiscal policy.

Draghi is thus fueling the debate about the European austerity policy, in which Germany stands for a strict austerity course, while countries like France and Italy are demanding more spending on economic stimulus programs.

The German Chancellor Angela Merkel is coming under increasing pressure. Only a few days ago she was harshly criticized for her austerity course - of all things by Nobel laureates in economics at a conference in Lindau.

Nobel Prize Laureate Joseph Stiglitz

Star economist Joseph Stiglitz, Nobel laureate, professor at Columbia University in New York and former chief economist of the World Bank, said in an interview with DW: "If you look at most European countries, you have to see that things look very, very bad there In many European countries, per capita income is now lower than it was before the crisis. That means half a decade or more than half a decade of stagnation. "

And for Stiglitz this is just the beginning: The euro zone is risking a depression that will last for years, which could even overshadow Japan's lost decade, he told the British daily Telegraph. The austerity policy advocated by Germany is directly responsible for the fact that Europe missed the upturn in the last six months.

In fact, the recovery in the currency area has stalled in the last three months - mainly because the three major economies of the euro area did not do well: The economy in France stagnated, in Germany it shrank and in Italy it even slipped into recession back.

It will be lonely for Merkel

Such harsh criticism does not come as a surprise from Stiglitz, he is considered a globalization and market critic and a die-hard Keynesian who advocates a policy that influences demand - in contrast to the monetarists, who want to control supply through monetary policy.

But the criticism of the European austerity policy is meanwhile across all economic schools. Lars-Peter Hansen, professor at the arch-liberal University of Chicago, spoke out against the "Welt am Sonntag" in view of the stagnation in the euro zone in favor of state investments in education and infrastructure.

Hansen believes Merkel's threat that debt sinners and unwillingness to reform would have to be punished more severely as an answer to the "structural flaws of the economic and monetary system" is wrong Idea, "he told the Sunday newspaper.

Erik Maskin, professor at the Institute for Advanced Study in Princeton, was also unflattering in the newspaper "Die Welt": Merkel simply had the wrong economic advisers.

It could get pretty lonely for the German Chancellor - now that even Draghi has called on the European governments to use their financial leeway.

After the resignation of the French government, the French President Fran├žois Hollande is already under considerable pressure and vacillates between austerity policies and the desire for state economic stimulus programs. If he sticks to Draghi, he could finally give in to his lust.

And this could also be a starting signal for countries like Italy, Portugal or Greece to soften the unpopular austerity policy in order to boost employment and growth.

Bad for Weidmann - good for the history book

And Jens Weidmann is now facing tough ECB Council meetings - the first on September 4th. The Bundesbank boss is at the forefront of those who do not want to pump more money into the cycle.

The ECB wants to inject money worth 400 billion euros into the market by the end of the year. The money is to be divided between two injections, with the first injection in mid-September.

So far, the consensus has been to wait and see the effects of such actions. But that was before Draghi suddenly dashed forward.

Maybe Draghi wants to prevent being "tarred and feathered" by historians one day. Peter Diamond, also a Nobel Prize winner and one of the world's leading labor economists, had threatened the European central bankers with this prospect if they did not help to bring the crisis to an end quickly.