Saturday, March 5, 2011

Is Trichet out of his ****** mind?!

The tightening of monetary policy in the Eurozone announced by Jean-Claude Trichet on March 4 is a “horrible idea” according to a much commented post on the German blog Kantoos Economics.

A striking graph shows the abrupt fall of the Euro area (15) quarterly NGDP deviation from trend since 2008. It is currently of – 10% and there is still no sign of recovery. Since the beginning of the year the euro has appreciated from about 1.35 to the current near 1.40 dollar, while the total nominal hourly labour costs keep falling as shown by Matt Yglesias here.

Yglesias concludes that “the Euro contraption is being run for the benefit of German bondholders and totally (ignores) the welfare of the majority of Europe’s citizens.”

My comment: This is precisely the theme of my forthcoming book (in press, in French).

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