Jean-Claude Trichet is sounding hawkish about inflation again — and this is very bad news for the European periphery. Let me offer a stylized example to explain why.
So, imagine a eurozone that contains only two countries, Germany and Spain. And let’s make two assumptions: first, Germany’s economy is three times the size of Spain’s, so that German inflation is 3/4 of the overall index, Spain’s inflation 1/4; second, past events have left Spanish wages and prices 20 percent logarithmic too high relative to Germany. (Why logarithmic? So I can just add percentage changes, without having to worry about compounding.)
Now suppose that you want to get relative prices and wages back in line over the course of 5 years. How can this happen? Well, one way or another we need to have German inflation 4 points higher than Spanish inflation over that period.
So consider two scenarios: in scenario A, we have 2 percent German inflation and 2 percent Spanish deflation. This implies an overall eurozone inflation rate of 1 percent. In scenario B, we have 4 percent German inflation and zero Spanish inflation, implying eurozone inflation of 3 percent.
In a frictionless world, it wouldn’t matter which scenario gets chosen. But in reality, scenario A, the low-inflation scenario, is vastly worse for Spain — for two reasons. First, it’s much, much harder to get actual deflation than simply to have stable prices, so scenario A means much higher unemployment. Second, because Spanish debt is in euros, scenario A implies a significantly worse debt burden.
So what we’re seeing is an ECB catering to German desires for low inflation, very much at the expense of making the problems of peripheral economies much less tractable.
This is going to be ugly.
Basicamente (do que eu consigo perceber!) diz que se os salários e os preços em Espanha estiveram 'inflacionados' em relação aos da Alemanha, e houver a tendência para contrabalançar isto em cinco anos, há duas soluções:
'deflacionar' os salários/preços na Espanha (o que significa que tu ganharias menos) ou manter as coisas como estão na Espanha mas 'inflacionar' a Alemanha. O Krugman acha que o BCE está a ajudar a Alemanha a manter a inflação baixa, mas que isto acaba por ser fatal para as economias como Portugal e Espanha: as pessoas ganham menos (ou nada), o desemprego aumenta e quando for para pagar a dívida, temos menos dinheiro para o fazer!
Passados alguns meses, ele insiste neste ponto:
Dooming the Euro (15 May 2012)
At this point an argument that was once considered way out there — that euro area adjustment won’t be possible unless the inflation target is raised — now has widespread support, albeit not from the crucial players. Inflation significantly above 2 percent is almost surely a necessary (though not sufficient) condition for the euro to survive.
So what’s happening to euro inflation expectations? We can look at theGerman breakeven — the difference in yields between German bonds, presumably viewed as safe, and yields on German bonds indexed to euro area inflation. This currently points to an expected inflation rate over the next 5 years of 1.3 percent — way too low to make euro survival feasible.
It was possibly getting into feasible territory in early 2011, then fell to levels that arguably doom the euro.So how has that breakeven evolved over time?
And what happened in April 2011? The ECB hiked rates, even though it was obvious that the rise in inflation was a temporary blip driven by commodity prices. This was a clear signal that the price stability obsession was as strong as ever. And it has meant, in the end, a loss of hope.
Credibility!
Ou seja, em Abril de 2011, assim que parecia que a inflação iria subir, o BCE aumentou as taxas de juro (para diminuir a inflação), o que leva o Krugman a dizer que estão mesmo comprometidos com a primeira solução (manter os níveis de inflação da Europa baixo, 'deflacionando' as economias periféricas).
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