The governor of the Bank of Portugal Mário Centeno has recently reassured the public that inflation in Europe is now under control. He was speaking at the La Toja Forum in Galicia, Spain. Centeno stressed that Europe’s focus should be on lowering risks and boosting confidence to maintain economic stability in the country.
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Inflation Under Control In Europe
Centeno explained that inflation rate is being carefully managed and the European Central Bank (ECB) is hoping to achieve its inflation target in the medium term.
Centeno said:
Inflation is under control The European Central Bank [ECB] has to be very good at communicating, because the inflation we are aiming for is medium-term. We are making decisions today so that in two years’ time inflation will be 2%. We’re already very close to 2%
This is an important message for many Europeans who have seen their purchasing power affected by inflation. High inflation may render money and assets devalued. But Centeno’s statements indicate that conditions are getting better and that Europe is on the right track to keeping prices steady.
Predictability And Reducing Risk
A key point Centeno made was the importance of predictability. He believes that predictability in financial and economic policies is essential to avoiding economic fragmentation. According to Centeno, predictability gives people and businesses more confidence in the financial system.
He said:
With Covid-19, the euro rose for the first time in a crisis context. Europe did its job, and we arrived at the crisis of the Covid-19 pandemic with lower levels of risk than we have ever had in Europe. Public finances were getting in order and that was extremely important to create confidence and create the response we had.
He talked about how the European Union took strong steps to deal with the COVID-19 pandemic which helped keep the euro stable. Centeno said that those crisis showed how strong Europe’s financial system has become with better management of the public fund than in previous crises.
Centeno emphasized that now our priority is to reduce risk and build more confidence among the public. According to him, public engagement is to very important to ensure economic stability.
He explained:
We need to lower the level of risk, increase confidence, and involve people in understanding what is at stake
The title of Centeno’s presentation at the La Toja Forum was Whatever It Takes: Trust and Integration in Europe. He stressed that trust is the foundation for economic recovery and growth.
When people have trust in the system then they are more likely to spend, invest, and contribute to economic growth.
Real Wages And Economic Recovery
One of the major concerns Centeno raised was the issue of real wages in Europe. He noted that Europe has seen a significant decline in real wages and people wants to recover their real wages.
Centeno said:
Europe has suffered the biggest drop in real wages compared to the United States of America. People’s greatest ambition is to recover that. Without that, we won’t recover economically
The rise in inflation over the past few years has reduced the purchasing power of many people in Europe. Centeno suggested that this wage issue should be a priority for European policymakers because without this economic growth will remain slow.
Europe’s Institutional Progress In Managing Inflation
Centeno also talked about some of the steps Europe has taken to make its banking systems stronger. He mentioned the Single Monetary Resolution Mechanism and the European Stability Mechanism as two examples of how Europe is more capable to handle financial crisis.
These mechanisms are designed to protect the banking system and keep Europe from being affected by sudden changes in the economy.
He said:
Greater predictability in monetary policy is something governors must offer
Challenges And Cooling Labor Market
Centeno acknowledged that Europe still faced difficulties regardless its progress. He noted that while it is important to have forecasts but not every outcome can be predicted.
Centeno highlighted:
We always want to have forecasts for all the results that the world can generate, to have a ready response, but this doesn’t exist. The rest is managed with a culture of risk
Centeno emphasized that ongoing growth is required and advised European leaders to avoid becoming complacent. He referenced reports by prominent economists Enrico Letta and Mario Draghi. They both have stressed the need for Europe to become more competitive in the global economy.
One area of concern for Centeno is the labor market. He pointed out that the labor market in Europe is cooling down which will become a major issue if not addressed. A cooling labor market can lead to fewer job opportunities, slower wage growth, and reduced economic activity.
He added:
The issue of growth in Europe is central. We can’t avoid it. In economics, you must be patient, and patience is liquidity
Centeno emphasized that policymakers need to take a long-term approach to ensure that economic decisions are sustainable and inflation is under control in Europe.
