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Eurocrisis and the ECB’s response

Some analysts consider the European Central Bank’s recent monetary easing, which involved negative rates on banks’ deposits at the ECB, a farce. These analysts have argued that the measures made use of illusionist tricks, but had very little real power to lift inflation from its dangerously low level.

The ECB’s President Mario Draghi, they say, has proven to be an able magician once again, as he has apparently succeeded in persuading many that there actually is something that the ECB can do about inflation.

Many people believe that central banks can increase inflation by printing money. But how can they be so sure about that?
The analysts sceptical about the ability of central banks to do that include Prof. Joerg Bibow, who recently wrote a letter to the Financial Times, arguing that inflation is not likely to appear in an environment of “wage repression“ (1), which he says has been the official response of the EU to the euro crisis, even if it has been sold under the euphemism of “structural reform of the labour market”.

His argument is as follows: you cannot expect people to spend more if their wages are not rising. Even in Germany, with its extreme rise in productivity in terms of unit labour costs (2), wages have been growing at an annual rate of only 2 per cent. In order to be able to gain back their market shares (3) lost to Germany as a consequence of its wage repression before the crisis, the peripheral countries need to make sure their wages grow less than the German ones. As a result, there is not much space for wage increases and therefore for inflation. The softening of credit conditions (4) cannot make up for this missing income; what is needed is wage increases, says Bibow.



  1. Why have some analysts called the recent ECB intervention a ’farce’ (1st paragraph)?
  2. Who is Mario Draghi and why is he called an ‘able magician’ (2nd paragraph) in the article?
  3. What is, according to Prof. Bibow, the actual meaning of ‘structural reforms of the labour market’?
  4. Why have, according to Prof. Bibow, the other euro area countries lost market shares to Germany?
  5. What are they doing to regain them?
  6. Why is higher inflation failing to appear in the euro area, according to Prof. Bibow?
  7. Would you like your wages to increase at the cost of increased inflation?
  8. Who do you think would profit and who would lose from higher inflation / higher wages?


wage repression (1) – deliberate measures aimed at prompting wage decreases, conducted by employers and, especially, by governments

unit labour costs (2) – the amount of money needed to pay an employee per unit of output. Unit labour costs depend on the workers’ productivity and on their wages

market share (3) – the portion of a market controlled by a particular company or product, or, in this case, companies or products from a particular country

credit conditions (4) – the concept expressing how difficult or easy it is to obtain credit from a bank


You can find additional explanation and more examples to help you understand and use English words and phrases at https://dictionary.reference.com, https://dictionary.cambridge.org/, https://www.merriam-webster.com/ or https://www.ldoceonline.com/