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Home Publications Blogs Beat the Press Any Hope That the ECB Will Stop Adhering to Superstitions?

Any Hope That the ECB Will Stop Adhering to Superstitions?

Wednesday, 17 August 2011 04:52

The NYT had a piece on the prospect that the euro zone countries might move to a closer fiscal union. The piece commented that one positive aspect to the recent growth numbers for most euro zone countries,

"was the hope that slower growth would lead to less inflation, giving the European Central Bank [ECB] more leeway to keep interest rates low and intervene in bond markets."

Of course it is also possible that sufficient evidence that the euro zone is growing way below its potential could in principle lead the euro zone to abandon its worship of 2 percent. Unlike the Federal Reserve Board, the ECB makes no pretense of targeting full employment. It has indicated a willingness to sacrifice trillions of dollars of output and leave tens of millions of workers needlessly unemployed due its exclusive focus on its 2 percent inflation target. If the banks board could be influenced by evidence then it might in principle be possible for them to alter this focus and switch to a policy designed to boost growth.

The article also peculiarly attributes the growth slowdown to the sovereign debt crisis. The more obvious explanation is the austerity programs that most countries have implemented in response to the crisis. The predicted effect of the cuts in government spending and tax increases put in place to reduce budget deficits is to slow growth. It appears that the economies of Europe are responded as expected.

Comments (2)Add Comment
you are what you do
written by frankenduf, August 17, 2011 8:54
the recession seems to highlight a problem with alotting central banks with the mission of fostering employment- banks will always care about banks no?- we should create a sovereign labor advocate to instantiate policy to stimulate job creation- maybe even an 'employment czar' (i know, i know, obama will immediately appoint some corporate ceo who is anti-union who gave $2mill to obama's campaign...)
written by Ben, August 17, 2011 10:17
It is somewhat bizarre that you have to hope for an even deeper economic downturn in order for the ECB to initiate policies to fight the already existing economic downturn.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.