IMF Director Kristalina Georgieva
(IMF Director Kristalina Georgieva)

A hard winter might cause social upheaval in Europe

The director of the International Monetary Fund (IMF) thinks that a harsh winter and an energy crisis may cause social unrest in Europe, amid a dire economic situation and rising fears of a recession.

“There is certainly fear of recession in some countries, or even if it is not recession, that it would feel like recession this winter,” Kristalina Georgieva said on Wednesday (Sept. 14) during an address at Michel Camdessus Central Banking Lecture held in Washington, D.C. “And if Mother Nature decides not to cooperate, and the winter is actually harsh, that could lead to some social unrest,” she added.

According to Georgieva the current situation meant that the European Central Bank needed to balance its monetary policy to fight inflation while adopting a stance “to keep the economy going.”

Georgieva also admitted that inflation has proven more “stubborn” than expected, and that the world’s central bankers need to be just “as stubborn in fighting it. “Inflation is more broad-based than we thought it would be,” she told an event with François Villeroy de Galhau, France’s top central banker. 

The IMF chief’s mea culpa matches similar admissions from other economists and central bankers that they were wrong about inflation’s path. Both U.S. Federal Reserve Chair Jerome Powell and Secretary of the Treasury Janet Yellen spent much of 2021 saying inflation was “transitory”, before retiring the word late last year.

In an interview with CNN earlier this year Yellen  recognized she got inflation calls wrong.
“I think I was wrong then about the path that inflation would take” she said. “There have been unanticipated and large shocks that have boosted energy and food prices, and supply bottlenecks that have affected our economy badly that I … at the time, didn’t fully understand.”

A few days earlier, Christian Sewing, Deutsche Bank CEO,  in a speech at the Handelsblatt Banking Summit in Frankfurt warned that “the longer inflation remains high, the greater the strain and the higher the potential for social conflict.”

Annual inflation rate in the eurozone jumped to 9.1% in August from 8.9% in July, above market forecasts of 9%. The inflation rate broke a new record high, as energy cost remains elevated (38.3% vs 39.6%) and food prices continue to accelerate (10.6% vs 9.8%). European countries are also facing the prospect of energy rationing heading into the winter. 

UPDATE 22/09/2022

There will be “people on the street” globally unless steps are taken to protect the most vulnerable from inflation, International Monetary Fund’s (IMF) Georgieva told CNN’s Christiane Amanpour on Wednesday (Sept. 22)

“It is important to think that this compounded impact of multiple crises is already testing the patience and resilience of people. And if you don’t take action to support the most vulnerable, there would be consequences,” she warned.

“If we don’t bring inflation down, this will hurt the most vulnerable, because an explosion of food and energy prices for those that are better off is inconvenience — for the poor people, tragedy. So we think of poor people first when we advocate for attacking inflation forcefully,” Georgieva added.

Everybody is just describing the situation. Solutions anyone?