Watching Jean-Claude Trichet’s Press Conference after rate decision is like watching the Eurozone exposing its own absurdity.
Jean-Claude Trichet said the European Central Bank is the central bank for 17 countries and millions of people in the Eurozone. That’s why he will have “strong vigilance” on inflation, and signalling a possible rate hike in July. But as the focus in on the difficulties on the peripheral countries, setting monetary policy for 17 countries is more like setting monetary policy for the stronger few.
As I have mentioned on my coverage of the Greek Tragedy, Euro is now becoming something similar to a gold standard. I have repeatedly mention the case of post-WWI Britain when Winston Churchill, then the Chancellor of the Exchequer, foolishly peg the British pound back to a pre-war gold standard which, by the end of the war, was making the pound sterling overvalued, stripping away all the competitiveness of the country. The only way that the country can hope to regain competitiveness would be through internal devaluation, i.e. wage and price deflation, as external devaluation, i.e. depreciating currency, was not possible.
That is happening in the peripheral countries, with large austerity measures by the governments crushing the living standard of people. The figures as cited in Bank of American Merrill Lynch hand Peripheral Eurozone Daily pointed out the industrial production in Greece fell by 11.0% yoy in April, unemployment rate rose to 16.2% in March. Likewise, property prices in Ireland continue to drop. These suggest that the situation is profoundly deflationary for these peripheral countries. Yet Jean-Claude Trichet has “strong vigilance” on inflation. How absurd it is for the peripheral countries!
Worse still, even austerity may not be the way out. The example of Latvia might be taken as a message of hope, but Greece is not Latvia. In fact, none of the peripheral countries are Latvia. Austerity would not be enough to bring the public finances in order for Greece, so roll-over will not ultimately solve the problem as this is just kicking the can down the road.
This article originally appeared here: Greek Tragedy: The Unbearable Absurdity Of The Euro
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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