How can inflation problems be addressed

Meanwhile, the cash holdings and sight deposits of households and companies (money supply M1) are increasing again at a normal rate, after a pronounced phase of weakness beforehand. This suggests that the ECB's monetary policy is slowly starting to take effect. A further rate cut is not required for this.

Historic rate cut by the ECB

Opinions differ on this. The German representative on the ECB Executive Board, Jörg Asmussen, dampens expectations: "Monetary policy is not an all-purpose weapon against any kind of economic disease." Especially in the crisis countries, where it is most needed, an interest rate cut hardly has any effect. On the contrary: Asmussen sees the danger that cheap money will reduce governments' willingness to reform. On the other hand, economist Julian Callow from Barclays Capital recommends, among other things, a rate cut - by 0.5 points to 0.25 percent: "Economic performance in the euro area is on the verge of collapse, this is a zombie economy." Above all, the high unemployment is a huge problem, the ECB has to act.

Two obstacles stand in the way of an economic turnaround in the eurozone. First, the middle class in the euro periphery is suffering from a pronounced credit crunch. A lower key interest rate can do little to change this. Lower costs for liquidity borrowed from the ECB would help all banks somewhat. But 0.25 percentage points are hardly significant for problem banks in peripheral Europe. That alone will hardly increase their loan supply. Second, less dynamic demand in China, Brazil and other emerging countries, a small setback for the US economy and increased competitive pressure from Japan with a weaker yen are depressing sentiment in German companies. Here, too, a slightly lower key interest rate from the ECB can only be of limited use. The weak yen has little to do with European and very much to do with Japanese monetary policy.

An even lower key interest rate would not be of much use. But it wouldn't hurt either. In April, the inflation rate in the euro zone and Germany fell to just 1.2 percent. The decline is exaggerated by special factors such as the comparatively early Easter celebrations. This year, the expensive travel season fell in March instead of April.

But even without special effects, inflation in the euro zone is currently a maximum of 1.4 percent. With a weak domestic economy, decreasing wage pressure and an exchange rate which, with the exception of the relation to the Japanese yen, is valued quite normally, there are signs of a further decline in inflationary pressure well into the coming year.

There is no inflation problem in Germany either. The rise in real estate prices and rents in some metropolitan areas is not credit-driven. Above all, it expresses the long-term strength of the German labor market and the after-effects of capital flight from peripheral Europe to core Europe.