Sinn, H.W., (2013), “Why Draghi was wrong to cut interest rates”, The Financial Times, 13 Νοεμβρίου.
Europe fears the Japanese disease. In Japan, the gross domestic product deflator – a broad measure of the price level – fell by about 1.2 per cent a year from 1999 to 2013. Today it is as low as it was in 1980. This was a catastrophe, which Japan may only now be overcoming with its Abenomics aimed at a devaluation of the yen.
The eurozone GDP deflator was only 1.6 per cent higher in the second quarter of 2013 than a year before. The consumer price index by October had increased by merely 0.7 per cent. These are low figures indeed. Seen this way, the European Central Bank’s fear of deflation – and last week’s interest rate cut – is understandable.
However, deflation in parts of a currency union is not the same as deflation of a union as a whole, because its internal effects on competitiveness cannot be compensated for by exchange rate adjustments. In fact, Greece, Spain and Portugal need to devalue in real terms by about 30 per cent relative to the eurozone average in order to correct the distortions that were brought about before the crisis by the inflationary credit bubble created by the single currency and thus restore their competitiveness. The ECB should not act against moderate deflation in these countries, but rather aim to offset such deflation by inflating the northern eurozone – Germany, in particular. For this, restraint – not activism – is needed.
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Σχετικές Αναρτήσεις
- Wolf, M., (2013), “Why Draghi was right to cut rates”, The Financial Times, 12 Νοεμβρίου.
- Münchau, W., (2013), “Optimism about an end to the euro crisis is wrong”, The Financial Times, 27 Οκτωβρίου.
- Münchau, W., (2013), “The eurozone needs to get inflation up again”, The Financial Times, 10 Νοεμβρίου.
- Cohen-Setton, J., (2013), “Blogs review: The deflationary bias of Germany’s current account”,Bruegel, 06 Νοεμβρίου.