Europe’s Inflation Gap

America’s awesome stats-and-charts web service FRED now has price data from the European Union’s horrible Eurostat, so it’s finally possible for chart-bloggers to write about European prices!

Here above is a simple look at the main inflation index for Spain and for Germany. What you see here is that the overall price level has been rising much faster in Spain than in Germany. And while the eurozone has many problems, this is in a lot of ways the problem. Not irresponsible public borrowing or scandalous banks or anything else. Conditions in Spain are just pretty different from conditions in Germany. But the European Central Bank has to try to make monetary policy for both of them. That’s really really hard.

If Spain and Germany were just different places in the same country, the fact that monetary policy is inevitably out of whack somewhere might be okay. Folks would move and the system would adjust. But Spain and Germany have different tax codes and different welfare states. They have different languages and different professional licensing systems. And they’re different countries, with different traditions and different nationalisms. Yoking them together into a single economic policy unit is just very very difficult and very very problematic.