"If you're scared of inflation, throw money at it." This is what Milton Friedman would say to modern Europe, which is faced with an imminent threat of a decrease in the amount of available money or credit in its economy and the resulting drop in prices. German and Finnish bankers have pushed the ECB to take action, something that it has opposed strongly, and incited fears of Japanization in Europe.
This situation would cripple a still fragile European economy as the region's member states continue to carry a heavy debt burden. Deflation would slow down the young recovery and would bog down sovereign debt repayments. Economic experts from KPMG and elEconomista predict GDP growth of 1% for this year, but question whether the results will hit the real economy. So they recommend sticking to the reform agenda in order to be strong in case any obstacles arise. In Spain, prices fell two tenths of a point in March. While we can't say that deflation has hit since the consumer price index has remained flat and lower prices can be blamed on a drop in demand. Another issue is that prices are falling because less money is circulating through the economy. That is where the real risk of deflation is.
The European Central Bank (ECB) is being pressured to pump money into the economy in order to free up credit markets and boost demand. Bankers such as Botín will also be involved in these tasks. Yesterday he announced that Santander would increase its loan offerings in Spain. The goal is to stimulate growth and economic recovery. That is the reason that everyone is pressuring Mario Draghi to take action on Thursday.