Will Trichet Let A Deflationary Depression Happen So He Can't Be Accused Of Bailing Out Greece?


An interesting observation from Tim Duy at Economist’s View (via Ryan Avent)

The European Central Bank, in particular, should be working more aggressively to counter deflationary pressures internally. But, alas, policymakers don’t want to be seen as bailing out weaker members for fear of losing credibility. One of the cut of your nose to spite your face situations.

This makes sense.

Trichet is super-sensitive to any charge that he’s sacrificing the independence of the ECB, or the strength of the euro, in order to save weaker countries like Greece. He’s even going around explaining how quantitative easing isn’t quantitative easing.

On the other hand, a full-on, explicit monetization scheme could be just what it takes to really get the wheels in motion for Germany to quit the whole project. Maybe he’s just looking further down the road.

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