Sunday, November 11, 2012

EC Bureaucracy and Reactionary Economists Condemn Eurozone to Recession

To some it all seems very strange. The Eurozone is in recession, and no one is doing anything about it. The ECB are keeping interest rates at 0.75%, and there are no plans for Quantitative Easing. It is possible to speculate on possible factors here, but there is one obvious answer. Consumer price inflation is expected to be pretty close to 2% this year and next in the Eurozone as a whole. So with inflation on target, what is there to do? Now I think there are strong grounds, familiar to anyone who has studied economics, for saying that monetary policy is not just about current inflation, but should be about closing the output gap as well. The OECD in June estimated that the Euro area output gap will be between -3.5% and -4% in 2012 and 2013. However monetary policy makers in the UK as well as the Euro area (and, until recently, the US) appear to be just looking at inflation. Textbooks will have to be rewritten.
Quote from Simon Wren Lewis's Excellent blog.

Click on the link to read this post in full. Oxford Economist Simon Wren-Lewis once again raises the essential question: Should European union go forward as long as EC bureaucrats are under the spell of retrograde economists, and have little direct responsibility to any directly elected legislative body such as the European Parliament. The current policy of austerity condemns most of Europe to recession.