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Saturday, July 28, 2012

What Draghi Hasn’t Done

Will the ECB come to the rescue? Paul Krugman is skeptical:

What Draghi Didn’t Do, by Paul Krugman: ...it’s now widely hoped that the ECB will start buying government bonds (although it’s not at all clear whether the Germans will allow this, particularly on a sufficient scale); this has caused a significant decline in Spanish interest rates from their peak.
Limiting interest rates on peripheral borrowing is, however, only part of what the euro needs. ...Europe also needs sufficiently high inflation over the next few years to make it possible for Spain etc. to regain competitiveness without devastating deflation. So have market expectations of inflation risen from their unworkably low levels of recent months? No:
This still looks unworkable.
Update: And this sounds like a “nein” from the Germans.

    Posted by on Saturday, July 28, 2012 at 11:15 AM in Economics, Inflation, Monetary Policy | Permalink  Comments (18)


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