Daniel Gros writes:   Stubbornly low inflation has the European Central Bank worried. But its response – essentially just more quantitative easing – could backfire, exacerbating imbalances and generating serious financial instability.

As it stands, the headline consumer price index in the eurozone hovers around zero, and even core inflation remains below 1%.

Instead of rethinking its strategy, the ECB is considering doubling down: buying even more bonds and lowering its benchmark interest rate even further into negative territory.

Easier credit conditions and lower interest rates are supposed to boost growth by stimulating investment and consumption demand. But in the core of the eurozone – countries like Germany and the Netherlands – credit has been plentiful, and interest rates have been close to zero for some time, so there was never much chance that bond purchases would have a significant impact there.

Of course, in the highly indebted peripheral countries, there was room for interest rates to fall and for credit supply to grow – and they have, leading governments and households to increase their spending. While the asymmetrical impact of the ECB’s policy is appropriate in principle, recovery supported by the least solvent economies is not sustainable.

Back in 1986, Hyman Minsky warned about the longer-term dangers to financial stability if “Ponzi” borrowers – those who can service their debt only with new debt – become the main pillar of the economy. A zero-interest-rate environment is of course ideal for such borrowers, because there is nothing to provide an indication of solvency; borrowers can just roll over their debt.

The standard response to Minsky’s concern – that the spenders can’t afford it and the savers aren’t spending – is that monetary policy should focus on ensuring price stability, while macroprudential policy aims to safeguard financial stability by limiting borrowing by highly indebted agents.

After the 2001 recession in the US, although the Federal Reserve kept interest rates low for a protracted period, the corporate sector did not increase its investment. The recovery was ultimately fueled by so-called “subprime” mortgages: home-purchase loans extended to borrowers with lower credit ratings. The result, as we know, was a mega-bubble that triggered the 2008 financial crisis.

In the eurozone’s case, the risk is compounded by the ineffectiveness of its key macroprudential limiting countries’ spending, as lower interest rates give debtor countries leeway to spend more. Public debt as a share of GDP is on the rise in Italy and Spain, even though both countries, with their eurozone partners, have committed to reducing the debt ratio.

In short, monetary policy is perpetuating the disequilibrium between creditor and debtor economies in the eurozone, and macroprudential policy is doing nothing to stop it. When interest rates normalize, this could generate serious financial instability. But – and this is the conundrum – the ECB has few options for stimulating demand among the eurozone’s more solvent agents, and thus supporting a sustainable recovery..

A recovery has already begun in the eurozone. It should be left to run its course. An even more expansionary monetary-policy stance might strengthen the recovery marginally, but at the cost of increasing the eurozone’s already-dangerous imbalances.

Two Spanish businessmen were sentenced to two years in prison in Cordoba for selling hundreds of thousands of litres of supposedly extra virgin olive oil that was, in fact, a mixture of 70-80% sunflower oil and 20-30% olive.

In 2008, Italian police arrested over 60 people and closed more than 90 farms and processing plants across the south after uncovering substandard, non-Italian olive oil being passed off as Italian extra virgin, and chlorophyll and beta-carotene being added to sunflower and soybean oil with the same aim.

Most alarmingly, a study last year by researchers at the University of California, Davis and the Australian Oils Research Laboratory concluded that as much as 69% of imported European olive oil (and a far smaller proportion of native Californian) sold as extra virgin in the delicatessens and grocery stores on the US west coast wasn’t what it claimed to be.

Extra virgin oil is mixed with a lower grade olive oil, often not from the same country. Meanwhile, the chemical tests that should by law be performed by exporters of extra virgin oil before it can be labelled and sold as such can often fail to detect adulterated oil, particularly when it has been mixed with products such as deodorized, lower-grade olive oil in a sophisticated modern refinery.

The olive, in more than 700 varieties or cultivars, has been grown for its oil in the Mediterranean since 3000 BC. Unlike most vegetable oils, which are extracted from seeds or nuts, good olive oil is made using a basic hydraulic press, or more modern centrifuge, so it is more a fruit juice than an industrial fat.

Like any fresh product, olive oil deteriorates over time. The public are just not aware of what’s going on. There’s plenty of oil out there that’s rubbish: last year’s oil or older. Or not even olive oil.

How to buy olive oil: Find a seller who stores it in clean, temperature-controlled stainless steel containers.   topped with an inert gas such as nitrogen to keep oxygen at bay, and bottles it as they sell it. Ask to taste it before buying.  Favor bottles or containers that protect against light, and buy a quantity that you’ll use up quickly. Don’t worry about color. Ensure that your oil is labelled “extra virgin.”  Try to buy oils only from this year’s harvest – look for bottles with a date of harvest. Failing that, look at the “best by” date which should be two years after an oil was bottled..

Kyrgyzstan will open a new bank, operating on Islamic principles of financing, the National Bank of the Kyrgyz Republic reported.

During an international financial conference “Islamic Finance: Response to the global aspirations” the meeting of the head of the National Bank Tolkunbek Abdygulov and the President of the Islamic Development Bank (IDB) Ahmad Mohamed Ali Al-Madani was held. They discussed prospects for the development of the economy of the Kyrgyz Republic, the establishment of a joint commercial bank which will work according to the principles of Islamic finance and the possible opening of IDB representative office in Kyrgyzstan.

“Tolkunbek Abdygulov and the Managing Director of the International Monetary Fund Christine Lagarde also discussed directions of further cooperation between Kyrgyzstan and the IMF. Christine Lagarde noted the concerted actions of the National Bank and the Government of the Kyrgyz Republic in the conduction of monetary and fiscal policy. A plan of possible joint actions amid the crisis was drawn up,” the National Bank of the Kyrgyz Republic says.