European news over the weekend:
Françcois Hollande won the first round of voting ahead for incumbent president Sarkozy. However, nationalist candidate and leader of Front National (FN) Marine Le Pen got 18%. That is the highest support for a FN presidential candidate ever.
The Dutch government de facto collapsed after Geert Wilders’ populist Freedom Party refused to back anymore austerity measures.
At the core of these two events obviously is the ongoing European crisis.
The response from European central bankers (all from the last couple of days):
ECB chief Mario Draghi in response to calls for European monetary easing from the IMF said: “None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least”
Luc Coene, ECB Governing Council member and governor of Belgium’s central bank: “We have done what we can do so far within our mandate and within the possibilities we have”
Bundesbank president Jens Weimann: “the problems in Europe can’t be solved by monetary policy measures.”
Weidmann continues: “Higher interest rates are also a spur toward reforms” (Weidman is referring to bond yields in countries like Spain)
I feel like quoting Scott Sumner:
I once read all the New York Times from the 1930s (on microfilm.) You can’t even imagine how frustrating it was. They knew they had a big problem. Then knew that deflation had badly hurt the economy (including the capitalists.) They knew that monetary policy could reflate. And yet . . .
Weeks went by, then months, then years. Somehow they never connected the dots.
“Monetary policy is already highly stimulative.”
“There’s a danger we’d overshoot toward too much inflation.”
“Maybe the problems are structural.”
“There are green shoots, things are getting worse at a slower pace. The economy needs to heal itself.”
“Consumer demand is saturated. Even workingmen can now afford iceboxes and automobiles. We produced too much stuff in the 1920s.”
And the worst part was the way political news kept slipping into the financial section. Nazis make ominous gains in the 1932 German elections, Spanish Civil War, etc, etc. In the 1930s the readers didn’t know what came next—but I did.
Thankfully we can learn from their mistakes.
Thanks Scott. I don’t feel I need to add anything…Very depressing indeed.