The euro zone has already experienced several tensile tests, especially after the financial crisis and the subsequent crisis in Greece. But now the next crisis threatens all massive tensions. The reason: Not only did inflation reach a record high, the euro countries are also affected to different degrees by inflation, as calculations by the Vienna think tank Agenda Austria have shown. The differences between the inflation rates of the individual euro members were even higher than ever in December 2021, and that could well have explosive power.
While countries with record inflation, such as Austria and especially Germany, are more and more keen to see a turnaround in interest rates by the European Central Bank (ECB) in order to dampen inflation, the situation in highly indebted countries such as Italy and France is very different: Here consumer prices have only risen slowly .
At first, the past year had started rather harmlessly. Consumer prices rose by a slight 0.8 percent in January 2021 in the euro zone. The ECB, whose official inflation target is an annual inflation rate averaging two percent, remained optimistic and expected an annual average inflation rate of 0.9 percent. But then it turned out differently. The ECB should have to revise its forecast upwards several times. As early as May, the euro area had reached two percent, and from the summer things went in quick succession: the price increase was three percent in August, and in December it had finally reached a record level of five percent.
The average over the entire year 2021 was 2.6 percent, which clearly missed the stated goal of an average of two percent. It will hardly be any different this year. Only recently it was the ECB itself that raised its inflation forecast for 2022 to 3.2 percent. The pressure on the ECB to raise its interest rates is also increasing. In addition to Austria, this is what all other countries want (see graphic). In Austria, the average inflation rate of 2.8 percent is well above the euro average.
Great Britain and the Czech Republic have already increased their key interest rates, but the key interest rate in the euro area remains at zero. The fact that this will not change so quickly is primarily due to the comparatively highly indebted countries such as Italy, which would find it difficult to cope with a turnaround in interest rates – to the detriment of Austria. “Due to the large differences in price developments, monetary policy for the entire euro area is difficult,” says Agenda Austria economist Heike Lehner. “However, it is time that the ECB, like the other major central banks, initiated an exit from the policy of cheap money so that inflation could return to its target of two percent”.