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.
The Market Monetarist 
Becky Hargrove
/ April 23, 2012Keep the faith! There are plenty of us non-economists rooting for your efforts.
Lars Christensen
/ April 23, 2012Thanks for the support Becky. I wish the wider public would get more involved in monetary issues, but that is probably too much to hope for.
Marcus Nunes
/ April 23, 2012“Weidmann continues: “Higher interest rates are also a spur toward reforms” (Weidman is referring to bond yields in countries like Spain)”
The guy is a lunatic!
Higher interest rates spur reforms which spur growth. That´s a new one for 21st century text-books.
Not just depressing. It´s also ludricous.
Lars Christensen
/ April 23, 2012Marcus, I better not to share my feelings about this subject…
Benjamin Cole
/ April 23, 2012Like Milton Friedman told Japan: Print more money, and if that doesn’t work, print even more and keep printing until you get robust growth and inflation.
The ECB is asphyxiating Europe, as the Bank of Japan did to Japan. And the Fed?
As long as we genuflect to the hobgoblin of price stability, we will never get off of our financial knees.
Lars Christensen
/ April 23, 2012Milton Friedman is not popular in Venezuela and Argentina and he is not popular in Frankfurt either. In Venezuela and Argentina the hero is Marx. In Frankfurt it is John Calvin is the hero…
Marcus Nunes
/ April 23, 2012On Argentina: The Economic Vice Minister, a 41 year old named Axel Kicillof in a 2 hr speech at the Senate one day after “stealing” Repsol, banged on the table and shouted: “Rule of Law, Business Environment” are horrible words. With a half-opened shirt he went on to call “clowns, parrots and imbeciles” all those that disagree with him!
Ravi
/ April 24, 2012Here is the headline from an NYT article this morning: “Call for Growth to Counter German Push for Austerity”. My suspicion is that even other European countries successfully reverse some of the austerity measures, we will see Scott Sumner’s argument of the fiscal multiplier being zero in action. People like Weidmann will almost certainly push for the ECB to offset it… yes, I’m feeling pessimistic!
Lars Christensen
/ April 24, 2012Ravi, it is an extremely good point. The ECB has the power to decide on the level of NGDP. My fear is that the ECB will react aymmetrically. They will tighten monetary policy if growth accelerates, but will not ease if growth is to come to a standstill…