The European Central Bank’s decision this morning to hold interest rates steady at 1 percent rather than cut closer to zero should go down in history as the latest in a series of inept decisions out of Frankfurt that have greatly exacerbate the problems of the world and the continent.
To be clear, the Euro itself suffers from a number of very serious design flaws and European economies suffer from various problems that are non-monetary in origin. But within that context, the people running Eurozone monetary policy still need to try to do their jobs properly. And with the Eurozone clearly headed for a recession, that means monetary easing. Especially in a context when a moderate amount of German inflation would be actually helpful in redressing some of Europe’s systematic imbalances, there’s absolutely no good reason for being this inflation-averse. What’s more, the ECB is perversely failing to even support its own policy agenda properly. Right now Spain and Italy are both governed by conservative political parties who are committed to the Frankfurt agenda of fiscal contraction and labor market reform. In Italy’s case the government was pretty literally selected by the European Central Bank in a weird contravention of normal democratic politics. So if nothing else, from a cynical perspective you might expect the ECB to try to “have the back” of friendly national governments who are desperately in need of help. In Spain, meanwhile, almost 25 percent of the workforce including a majority of younger workers are unemployed. To the extent that the European Central Bank continues to indicate that it simply doesn’t care about this the case for pulling an Argentina grows stronger.
One can only hope that François Hollande’s iminent election in France can somehow lead to a reordering of ECB thinking.