June 30, 2009
The chickens are coming home to roost for Jean-Claude Trichet, the hardline monetarist head of the European central bank.The latest inflation data shows that this past month European prices had fallen so much that the inflation rate is now negative.Prices in June were 0.1 % lower than prices a year ago.Falling prices means deflation with harsh consequences for employment and growth.
The ECB has a target of 2% price rise per year but it is now in negative terrain suggesting that further measures are needed in Europe to fight the deep recession. Let us hope that President Sarkozy will speak up as he has in the past to put some pressure on Trichet. Deflation once it takes hold is a very serious problem which will have far reaching social and political consequences.The ECB should cut its 1 % interest rate and and the Eurozone countries should increase their fiscal stimulus to generate employment.The size of their previously announced fiscal stimulus is still too small to do the job.
No comments:
Post a Comment