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I am sorry for my horrible spelling. Here the corrected version of my comment:

Well, last Thursday the ECB once again disappointed. Obviously it is also once again not clear if it is Draghis fault, or if the Bundesbank is the problem. With head line inflation at 0.3% and core inflation at 0.7%  things are looking bleak. 5y5y has now fallen bellow 2%, indicating what any sane man knew all along, that inflation expectations have been unanchored.

Meanwhile early indicators point to very low growth in Germany in the third quarter, with a substantial risk that Germany is in recession. Early reports also indicate that Brussels wants to force Italy and France to cut spending sharply. Which will contract the Eurozone economy even further.  

We are approaching a perfect storm.

by rz on Mon Oct 6th, 2014 at 10:05:27 AM EST
[ Parent ]
rz:
Early reports also indicate that Brussels wants to force Italy and France to cut spending sharply. Which will contract the Eurozone economy even further.

To judge by the propaganda blitz in France, that's where we're heading.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 6th, 2014 at 10:36:50 AM EST
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Are you saying that the France Press thinks this is a good idea?

If France cuts it budget, where is the demand gonna come from? Germany? Ha!

Maybe we can beg the Fed the keep the printing press rolling.

by rz on Mon Oct 6th, 2014 at 10:42:42 AM EST
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The French chattering classes are completely captured by the idea that the deficit must be reduced, therefore unfortunately the state must be shrunk (and they forget to mention the corollary, crashing the economy)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Oct 6th, 2014 at 10:48:12 AM EST
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When Gerd Schroeder did the same in Germany the economic consequences were severe. But it was done at a time when the global economy was going more or less well. This time it is going to be a disaster.
by rz on Mon Oct 6th, 2014 at 10:51:47 AM EST
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There is little or no place in the French public discussion (journalists, commentariat, pols of "left" or right) for a different point of view than: France is hopelessly retrograde and must shrink the state, reduce benefits and taxes, deregulate the labour market.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 6th, 2014 at 11:33:01 AM EST
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Is there any criticism of the ECB for failing to meet its 2% inflation target?
by rz on Mon Oct 6th, 2014 at 11:36:08 AM EST
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There's sometimes some concern about low inflation, but as long as "deflation" can be avoided as a topic of discussion, it doesn't reach alarm proportions.

Anyway, since growth and jobs come from austerity...

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 6th, 2014 at 11:43:48 AM EST
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A key argument why Labor market liberalization is supposed to generate growth, is that it allows to deploy capital in the most effective way. But even if this is true, it can only work if capital is deployed at all. And to do this you have to have a central bank which is committed to keep inflation up (see Federal Reserve). Since this is not the case in Europe, labor market reform will be a major disaster.
by rz on Mon Oct 6th, 2014 at 03:37:03 PM EST
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Draghi last Thursday (emphasis mine):

ECB: Introductory statement to the press conference (with Q&A)

Looking ahead to 2015, the outlook for a moderate recovery in the euro area remains in place, but the main factors and assumptions shaping this assessment need to be monitored closely. Domestic demand should be supported by our monetary policy measures, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. At the same time, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, continued negative bank loan growth to the private sector, and the necessary balance sheet adjustments in the public and private sectors.

(...) Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, job creation and potential growth, other policy areas need to contribute decisively. In particular, the legislation and implementation of structural reforms clearly need to gain momentum in several countries. This applies to product and labour markets as well as to actions to improve the business environment for firms. As regards fiscal policies, euro area countries should not unravel the progress already made and should proceed in line with the rules of the Stability and Growth Pact. This should be reflected in the draft budgetary plans for 2015 that governments will now deliver, in which they will address the relevant country-specific recommendations. The Pact should remain the anchor for confidence in sustainable public finances, and the existing flexibility within the rules should allow governments to address the budgetary costs of major structural reforms, to support demand and to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of the euro area's existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt ratios, to raising potential growth and to increasing the euro area's resilience to shocks.

What a sick mess that speech is. Whatever Draghi sees, he's not going to contradict the nonsensical mantra coming from the monetarists / neoliberals: growth and jobs will come from smashing demand to smithereens (in spite of several years evidence to the contrary).

Just as long as regulation and redistribution are smashed in the same process. Draghi sees this perfectly well, too. He's a Vampire Squid alumnus, after all.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 6th, 2014 at 11:25:23 AM EST
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the progress made in fiscal consolidation and structural reforms

How is that going to support demand?

If we look for a country country in Europe which has done everything the IMF, ECB and Brussels wanted, it is Spain. How are things going there? Growth is anemic, unemployment is sky high.

If France does implement structural reform, we now that this means liberalizing the labor market. Without sufficient demand the first thing to happen is that people will get fired. Collapsing demand even further. When is this going to turn around? We are now 6 to 7 years into the crisis. Nobody can call the situation Spain a turnaround. One wonders when the magic 'long run' will be in which the supply side reforms will work.

by rz on Mon Oct 6th, 2014 at 11:35:24 AM EST
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and lower energy prices supporting real disposable income

See what he did there? When real disposable incomes turn out to go down, it will not be the fault of the ECB, but of higher energy prices, because Who Could Have Predicted?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Oct 6th, 2014 at 11:42:26 AM EST
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Well, lower energy prices do come with depression.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 6th, 2014 at 11:48:36 AM EST
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As in '08-'09.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 6th, 2014 at 11:50:14 AM EST
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Oops, should have said 'contraction'....never use the D word.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 6th, 2014 at 11:51:16 AM EST
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Well, he had to put a bit of icing on the cake.

I mean, if there are "ongoing improvements in financial conditions", what is he doing announcing measures against there being no lending, no investment (ie everyone hanging on to their last penny)?

That just leaves him with "fiscal consolidation and structural reforms", which everyone can see are not in fact producing anything positive. As that is in fact the cake he wants us to swallow, it's a bit stale and nasty.

So, energy prices are the icing. Got to find some somewhere.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Oct 6th, 2014 at 11:51:41 AM EST
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