When the ECB raised its rate, it left me perplexed. Mind you, I am not a Keynesian die hard, nor a Monetarist. But I understand those economic views, and I also believe that one should play the economic game as it is, not as you want it to be. What I mean by that is, if the rest of the world is devaluing to make exports cheaper and debt repayments easier, why the hell would someone do the opposite? There is no prize for being the first to crash your economy. It's economic suicide.
Don't get me wrong, I believe the global fiat system is gradually imploding. But why hurry things and try to protect your currency by sacrificing your economy? Well, it looks like German fears of inflation may doom the periphery countries.
From Paul Krugman:
Why People Say “Eeh!” When They Learn About the ECB
With all the craziness at home, I didn’t have time to comment on the European Central Bank’s decision to raise rates despite continuing very high unemployment.
The first thing to say is that overall eurozone numbers look very much like US numbers: a blip in headline inflation due to commodity prices, but low core inflation, and no sign of a wage-price spiral. So the same arguments for continuing easy money at the Fed apply to the ECB. And the ECB is not making sense: it’s raising rates even as its official acknowledge that the rise in headline inflation is likely to be temporary.He continues:
During the eurobubble years, there were huge capital flows to peripheral economies, leading to a sharp rise in their costs relative to Germany. Now the bubble has burst, and one way or another those relative costs need to be brought back in line. But should that take place via German inflation or Spanish deflation?
From a pan-European view, the answer is surely some of both — and given that deflation is always and everywhere very costly, the bulk of the adjustment should in fact take the form of rising wages in Germany rather than falling wages in Spain.
But what the ECB is in effect signaling is that no inflation in Germany will be tolerated, placing all of the burden of adjustment on deflation in the periphery. From the beginning, euroskeptics worried about one-size-fits-all monetary policy; but what we’re getting is worse: one-size-fits-one, Germany first and only.
That’s a recipe for a prolonged, painful slump in the periphery; large defaults, almost surely; a great deal of bitterness; and a significantly increased probability of a euro crackup.
Aside from that, it’s prudent, reasonable policy.SOURCE
As I have said in my past post: The Rise of the Fourth Reich, Germany is making decisions based around its own self interest, disregarding the long term consequences to the Euro, and the EU as a whole. Nonetheless, I feel that it is a failed experiment anyway, that the periphery countries could never compete with Germany using the same currency.
Maybe Germany's "Germany First" policy will hasten the end of the Euro... and with it, the fiat experiment of the past 40 years.