Euro Area: How can the ECB even think of keeping everything together, with policies that failed 10 years ago?
There is a lot of talk about the inflationary problem in Italy, and this is quite right: citizens are suffering a very harsh punishment for errors in the energy sector of the last 20 years and the war is a pretext, or rather the icing on the cake.
But if you think the situation in Italy is particularly serious, we present two graphs from WolfStreet that show how different inflation is within the Eurozone:
Inflationary values on an annual basis in June 2022
Even though the two extreme countries are relatively small, Estonian inflation is almost 4 times that of Malta. Malta and France contained the surge with a tight energy price control policy. Beyond the three Baltic republics, Greece, Belgium and Spain also see extremely high price variation indices.
It is clear that the common market does not work, otherwise we would not see these kinds of differences. With a commodity and energy market that is not working, with such large inflation differences, how can the ECB even vaguely think that it can carry out a common monetary policy? Nor do I address the problem of the debt of individual states which, paradoxically, is alleviated by inflation: debt is expressed in monetary values, therefore normally eroded by inflation, even if the near future recession will certainly not help.
In such a situation, first we would have to deal with the market, especially transport and energy infrastructures, and then with monetary problems. instead the single currency was created precisely with the illusion that it could solve something. In this situation, the only possible policy is the looser one, but also the one that only kicks the jar and does not resolve either the debt or the structural differences. At this point it would be more appropriate to break the coin, at least for macro-areas, and let each area solve its own problems.
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The Euro Area article: how can the ECB even think of keeping everything together, with policies that failed 10 years ago? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/euro-area-come-puo-la-bce-anche-solo-pensare-di-tenere-tutto-assieme-con-politiche-fallite-10-anni-fa/ on Sun, 03 Jul 2022 13:42:17 +0000.