We've been waiting a long time to see when interest rates would rise in Europe. The ECB has been giving signals for the last month that it will raise them at its next board meeting in early April.
The ECB is concerned about inflation, so rates will rise. That means the euro zone's countries with deficit problems are about to see them get worse.
The ECB is concerned about inflation, so rates will rise. That means the euro zone's countries with deficit problems are about to see them get worse.
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...which begs the question: why on earth are they worried about inflation in the middle of an economic crisis, in the face of massive unemployment?
ReplyDeleteWhat they're really afraid of is stagflation. The ECB released a string of Working Papers today that stressed the importance of structural adjustment policies and adjusting wages downward to getting out of the crisis and putting EMU on what they see as a more sustainable footing (business cycle convergence).
ReplyDeleteHere is the link to today's Trichet speech:
ReplyDeletehttp://bis.org/review/r110408b.pdf