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Strategies & Market Trends : John Pitera's Market Laboratory
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To: richardred who wrote (21053)6/29/2018 3:41:41 PM
From: elmatador  Read Replies (1) of 33421
 
While the ECB helped mitigate the euro crisis in the aftermath of Lehman, it has stretched its monetary mandate and moved into fiscal territory. This text describes and summarizes the crucial role played by the ECB in the intervention spiral resulting from its bid to manage the crisis. It also outlines ongoing competitiveness problems in southern Europe, discusses the so-called austerity policy of the Troika, comments on QE and presents two alternative paths for the future development of Europe.

...
In principle, there are only four dismal options for dealing with the problem. The first involves a disinflation, if not outright deflation, in southern Europe. It is painful, as it implies stagnation and potential difficulties for long-term debtors and tenants with nominally fixed payment obligations and can be compared to a form of chemotherapy.

The second is re-inflating the north to catch up with the increased price levels in the south. This expropriates savers who invested in securities and savings accounts and violates the ECB’s price stability target.

The third is implementing a transfer union whereby the north permanently co-finances living standards in the south. It is expensive, as the euro countries in difficulty comprise about 40% of the Eurozone population. It would drive the south into a permanent Dutch disease of the kind prevailing in the Italian Mezzogiorno, Spanish Andalusia or ex-communist eastern Germany, sustaining wages above the competitive market equilibrium.

The ECB’s fiscal policy
link.springer.com
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