May 8, 2016

IT'S A DEFLATIONARY EPOCH:

Draghi, Schäuble and the high cost of Germany's savings culture (Wolfgang Munchau, 5/08/16, Financial Times)

By insisting on austerity during the eurozone crisis, and failing to raise investment spending at home, Berlin was instrumental in de­pressing aggregate demand at home and in the eurozone at large. The eurozone's long depression caused a fall in inflation below the target rate of just under 2 per cent. The ECB response has been to cut short-term rates to negative levels and buy financial assets. If German fiscal policy had been neutral during that period, the ECB's job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much.

It would be useful at that point for Mr. Munchau to explain why no other central bank has been able to increase inflation.


Posted by at May 8, 2016 2:53 PM

  

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