Germany, not Italy, now holds the dubious title of the “sick man of Europe,” according to Fabio Panetta, governor of the Bank of Italy and member of the European Central Bank (ECB) board.
Speaking at Bocconi University in Milan on Tuesday, Panetta remarked on Germany’s economic challenges while pressing for a significant shift in ECB monetary policy.
As reported by Il Giornale, he argued that with inflation nearing the ECB’s target and domestic demand stagnant, the time for restrictive monetary conditions has passed. “The ECB must normalize monetary policy, move towards neutrality or even into expansionary territory, if necessary,” he said.
Emphasizing that the current rate of 3.25 percent on bank deposits may still be far from neutral despite the ECB cutting interest rates three times between June and October, Panetta urged to be more proactive.
“We should return to adopting a more forward-looking approach in setting monetary policy and providing more guidance on future moves now that post-pandemic shocks are easing and inflation is normalizing,” he said.
“This will help businesses and families to form an opinion on the future path of rates, thus supporting demand and the recovery of the real economy,” he added.
Reflecting on the broader European economic landscape, Panetta highlighted Germany’s current struggles. “Ten years ago, Italy was ‘the sick person of Europe.’ Today, if you have to redefine who the sick person of Europe is, it’s not Italy, it’s probably Germany, according to what we read in the press.”
However, he added, “It won’t last forever; things change and are the result of choices and policies.”
Germany’s economic challenges, including stagnant growth and weakened industrial output, have drawn scrutiny as the country’s previously robust economy faces significant difficulties.
Earlier this month, research from the Leibniz Institute for Economic Research Halle (IWH) revealed that bankruptcies in Germany are soaring to their highest level in 20 years, with more and more companies being crushed under the country’s growing economic crisis.
A total of 1,530 individuals and corporations filed for bankruptcy in October, 17 percent more than last month, according to the institute’s findings.
In particular, German car manufacturers are feeling the squeeze, with Volkswagen recently announcing plans to close at least three German plants, reduce wages by 10 percent, and make thousands of redundancies, while auto parts maker Schaeffler also revealed this month it was scaling back on employees.
Last month, official figures showed that German industrial orders fell by 5.8 percent in August compared to July, far higher than the 2 percent drop anticipated, with Jens-Oliver Niklasch, an expert at Landesbank Baden-Württemberg, predicting that “everything points to a recession.”
