ECB Fiddling While Eurozone Burns

It’ll all blow over in two or three years.

Photo by Sean Gallup/Getty Images

Many eurozone countries, as you may have heard, are wrestling with high unemployment. And due to a variety of factors, these countries generally can’t cushion the blow with fiscal stimulus. So monetary stimulus from the European Central Bank would seem to be just what the doctor ordered.

The downside of monetary stimulus is it may create inflation. But the eurozone just registered record-low inflation of 0.8 percent headline and 0.7 percent core. So if anything you should worry that excessively low inflation is creating a crushing debt burden.

ECB seems blasé:

The ECB in December forecast inflation would return to a target of just below 2 per cent in the medium term and emphasised that expectations of price stability remain well anchored. It has forecast inflation will hit 1.1 per cent this year, before rising to 1.3 per cent in 2015.

Get what they’re saying here. They’re saying it doesn’t matter that they undershot their inflation target in 2013 because after undershooting it again in 2014 they’re on course to undershoot it less drastically in 2015 and then by 2016 they should be back on track. On what planet is that acceptable?

There are lots of thorny issues in European politics and difficult institutional problems. This isn’t one of them.