The damage done by ECB’s rate hikes in 2011 (the 3-graph version)

Since the failure of the Cyprus “bailout” the euro crisis has once again flared up and investors are once again have become nervous about that future of Europe’s common currency. I believe most of the present problems dates back to ECB’s fatal decision to hike interest rates twice in 2011.

The three graphs below illustrate this – while the US is slowly getting out of the crisis things have in fact gotten worse and not better since ECB’s first rate hike in April 2011.

First from the perspective nominal GDP growth.

NGDP US euro zone

Second the horrific euro zone labour market situation versus the gradual improvement in the US.

unemp euro US

Finally the price level – the deflationary environment in Europen is becoming in clear

Relative price level US euro

It is time for the ECB to end its deflationary policies and take action sooner rather than later.

Leave a comment


  1. Mattias

     /  April 3, 2013

    Hej Lars,

    Om du är intresserad av den svenska debatten kan jag länka till en ledare i DN idag skriven av Lars Calmfors, troligen den mest inflytelserika ekonomen i Sverige senaste 15-20 åren.

    Han tar bl.a. upp diskussionerna om NGDP (level) targeting på 5%.


    • Thanks Mathias.

      This is very good. It is important to have this debate – also in Sweden.

      One thing I would notice is that Riksbanken continues to undershoot it’s 2% inflation target. Obviously I think a NGDP target would be much preferable to the present IT regime. That would hopefully also end the idiot debate about macroprudential indicators that has kept Swedish monetary policy overly tight over the past year.

      For my non-Scandinavian readers I would recommend that you read the link above with Google translate. Lars Calmfors has for years been one of Sweden’s most influential economists.

  1. The damage done by ECB’s rate hikes in 2011 (the 3-graph version) | Fifth Estate
  2. The euro crisis: Has anyone seen the ECB? | The Economist « Dr Alf's Blog
  3. TheMoneyIllusion » The stock market cares a lot about the budget fiasco
  4. TheMoneyIllusion » QE: A view from the trenches
  5. The Supply Shock is Coming… in 2016(!?) | uneconomical
  6. Crucified on a Cross of Euros

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: