American Medias idiotic Conspiracy Theories, Blaming Russia and China on Europes Deflation

[senheiser]

Good News: The eurozone is just one negative shock away from deflation.
in this older thread i pointed out that european economy could slow down again and end in recession and the ecb has limited power to handling it thanks to deflation.

But american media is really accusing china and russia for that, if you think RT is propaganda think again

Geopolitics Makes ECB's Life Harder - MoneyBeat - WSJ

Could Russia and China be driving euro-zone deflation?

With each passing month, the euro zone seems to head ever closer to outright deflation. Although much of the blame is pinned on the combination of fiscal austerity in many member states and the European Central Bank’s failure to provide adequately loose monetary policy, there are likely to be exogenous forces at work.

Like the strong euro. Yes, some of the euro’s appreciation will be down to policy failure within the single currency region. But it’ll also be down to forces beyond European policymakers’ control. Such as Russia’s and China’s desire to reduce their dependence on U.S. dollar assets.

Since the end of January, the euro has gained 1.8% on a trade-weighted basis and is up 14% from its lows last summer.

Meanwhile, euro-zone inflation has been falling. The latest reading shows consumer prices in the single currency region were only 0.7% higher than a year ago. Last summer, the inflation rate was 1.6% and at the end of 2011 it was running at around 3.0%. The ECB’s target is just under 2%.

The ECB thinks the fall in inflation is a temporary phenomenon and will be reversed before long. In part it’s down to commodity price falls. But the ECB also thinks the euro’s currency strength shouldn’t last. The euro gained ground amid the emerging markets crisis as investors sought safe havens.

But if the euro is caught in political cross-currents, its valuation could stay inflated in excess of where it makes economic sense for a long time yet.

Last week it was speculated that Russia was selling its U.S. Treasury bond holdings–Treasury securities held in custody for foreign official and international accounts dropped by $105 billion in the seven days to last Wednesday, taking foreign central bank holdings to a 15-month low.

At the end of last year, Russia was the 11th largest foreign holder of T-bonds, worth some $139 billion. If it is selling part of its T-bond holding in response to American pressure over Crimea, the Russian government will want to park the money in another reserve currency. The euro is a likely candidate.

Were China to do the same, the upward pressure on the euro could start to become extreme. At the end of 2013 China held $1.3 trillion in Treasury securities. But even if it doesn’t sell, the Chinese central bank has been allowing the currency to devalue recently. With emerging market currencies generally softer plus the Bank of Japan pursuing a weak yen policy, the pressure on the euro has become considerable. It is getting to the point where currency strength imperils policymaker hopes to drive economic growth with exports.

The closer the euro zone gets to outright deflation, the more worrying it is for policymakers, because outright falling prices would threaten to pull the single currency region into long Japan-style period of stagnation and endless fiscal support of the economy, with consequent expansion of public sector debt and possible crisis further down the line.