Duncan’s Economic Blog

Earth calling the ECB

Posted in Uncategorized by duncanseconomicblog on September 1, 2011

In today’s FT we learn:

  • The IMF thinks that Eurozone banks may have far more severe losses on sovereign debt than they have reported.
  • Eurozone unemployment is rising but inflation is stable.
  • Portugal is passing even tougher austerity measures and the economy is expected to contract next year. Debt to GDP will rise to 106%.
  • In Italy the government is rapidly losing credibility and the economy is becoming even more unstuck.
  • Greece’s fourth largest bank has sought emergency liquidity support.

All of which begs the question – what on earth was the ECB doing raising interest rates this year???

(Having trouble with links – will add later)

9 Responses

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  1. JakeS said, on September 1, 2011 at 9:29 am

    The ECBuBa raised rates because it was concerned that Germany might be coming out of the slump, and this might make German wage earners want to get paid for their work. Since the whole point of having an independent central bank is to ensure that wages are kept suppressed, the ECBuBa had to raise rates.

    (This idea of a German recovery is delusional, since the German recovery plan is predicated on global recovery to boost exports, but sadly little things like simple arithmetic has never stood in the way of a good ECBuBa delusion.)

    – Jake

  2. J said, on September 1, 2011 at 9:48 am

    Inflation causes Hitler.

  3. notayesmanseconomics said, on September 1, 2011 at 11:30 am

    Hi Duncan

    The part where the FT refers to Portugal’s debt to GDP ratio rising to 106% is based on official forecasts. As I have pointed out in my blog today if Latvia and Greece’s progress under an IMF inspired austerity programme is any guide the likely outcome is worse than that and possibly much worse.

    I say it sadly because I like Portugal a lot but with her past record of poor economic growth she is beginning to look in a similar situation to Greece in terms of being past the point of no return on current tactics and strategy.

  4. Tim Worstall said, on September 1, 2011 at 12:57 pm

    “what on earth was the ECB doing raising interest rates this year?”

    That’s the problem with government as a whole really isn’t it? Sometimes the idiots get in.

    Far better to have a system where the idiots can’t do any harm even if they do get in: you know, that minarchist state thing?

    • JakeS said, on September 1, 2011 at 2:54 pm

      Uh, no.

      The lesson to learn from the fact that Thatcherist traitors break things is that Thatcherist traitors break things, and therefore should be kept away from positions of responsibility.

      To destroy industrial civilisation so that there will be nothing left for the Thatcherist traitors to break is a solution that should be filed right next to bloodletting in the great bin of cures that are worse than the disease.

      – Jake

    • yorksranter said, on September 2, 2011 at 11:30 am

      Like an independent central bank as the only macro-economic policymaking institution, with a hard inflation target and a hard limit on currency issuance. Just like the Bank of England in 1840-odd.

      Or, of course, the ECB right now.

      I think the fact prominent econoblogger and spammer Tim Worstall doesn’t know, or pretends he doesn’t know, that the European Central Bank is…a central bank should be more widely publicised.

  5. jomiku said, on September 1, 2011 at 3:53 pm

    I try to give credit to views that, to me, don’t make sense. With the ECB, the best I could come up with is they were playing a version of the old, diplomatic nations game: by focusing on inflation, they were attempting to distract from the debt problem. The old nations game was somewhat of a pea shuffle – you know, the shell game – in which you’d do one thing to draw attention from what was really happening. My best gloss on the ECB was they were attempting to make calm by signaling the problem was inflation, thus drawing eyes from the actual problem of sovereign debt, sovereign debt rollover, multi-country guarantees and, of course, the Euro’s status. It makes sense; they were rightly concerned about panic if they signaled concern over growth and they are certainly well-positioned to know the many countries couldn’t – and still can’t – come to agreement.

    I may be wrong, but at least this version gives them credit for thinking. It also makes sense in light of recent actions: still talking up inflation worries with one hand. It is perhaps a vain hope that growth will emerge.

    I referred to the nations game because this view of the ECB is, like the old game, more form than substance. What was required was a strong, coordinated hand but nothing like that exists.

    • JakeS said, on September 1, 2011 at 8:47 pm

      Unfortunately, the ECBuBa is all about substance, as anybody who followed the Greek crisis would know.

      I say unfortunately because the ECBuBa is insane. It is also the most powerful institution in the EU at the moment.

      Winter is coming.

      – Jake

  6. […] Tim is or claims to be unaware that the European Central Bank is an independent central bank. Let’s roll the tape: “what on earth was the ECB doing raising interest rates this […]


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