This is a “must read” article published on the Economist’s “Free Exchange” blog. Check it out!
Commenting on the Eurostat unemployment figures in Europe, the article is extremely critical of the policy of the ECB.
The article rightly comments that it is hard to determine which part of Europe’s unemployment statistics is the most remarkable but finally concludes:
It is the youth figures that are most remarkable, however: 59.1% of those under 25 are unemployed in Greece, 55.9% in Spain, 38.4% in Italy, 38.3% in Portugal, 26.5% in France—3.6m youths in all.
The argument focuses on monetary policy and does not talk about Germany reflating her economy to help the rest of Europe. It concentrates on targeting the weakness of ECB policy, compared to the bold policy of the US Federal Reserve, citing:
* Interests rate held to high and
* The absence of quantitative easing
I agree that the ECB has been far too conservative, compared to the US Fed and the UK’s BoE. In my view, the ECB has not demonstrated sufficient independence from political opinion, especially in Germany; the ECB’s board is influenced by German representation with conservative views (anchored in ordoliberalism).
Perhaps, the problem with the ECB is even more fundamental. Is it really a “central bank”, like the Fed, or the BoE? Also the operating mandate of the ECB seems much narrower than the Fed which actions unemployment.
With German Chancellor Angela Merkel refusing to bow to international pressure and reflate Germany with fiscal measures, all eyes will be on the ECB today (Thursday) with its announcement. If the ECB fails to act, I fear that speculators will start challenging the Euro again, with hedge funds targeting the weak under-belly, like France.
Of course, this story will appear very differently in Germany where legislation and the Constitutional Court preclude certain action. With an election in Germany in September Angela Merkel is unlikely to rock the boat of German public opinion, so the stalemate will continue until speculators force:
- Strong stimulas from the ECB
- Reflation in Germany
- Break-up of the Euro
What do you think?