Germans now favor a dual mandate for the eurozone, inflation and growth - InvestingChannel

Germans now favor a dual mandate for the eurozone, inflation and growth

Back in 2011, rising oil prices (and higher VATs) briefly pushed inflation above the ECB’s near 2% target.  Some pundits suggested it was unwise to tighten, because unemployment was so high, and the price increases were transitory, but the German’s insisted that the ECB must focus like a laser on inflation, and ignore all other factors.  So the ECB tightened repeatedly in 2011, driving the eurozone into a catastrophic double dip recession (depression?)

And now we face the opposite situation.  Eurozone inflation is down to 0.3%, and plunging oil prices seem likely to send it even lower.  So once again the Germans are suggesting that the central bank focus like a laser on . . . both inflation and growth:

German council member Jens Weidmann signaled how oil is now a focal point in the quantitative-easing debate when he said last week that the drop in energy costs is like a mini stimulus package, suggesting no need for the ECB to expand its current measures. The opposing view, previously argued by Draghi and ECB Chief Economist Peter Praet, is that temporary price shocks can deliver lasting harm to an economy as feeble as the euro area’s.

Seriously, it doesn’t matter what the data show, the Germans will always find a reason to favor ever tighter money, ever more deflationary policies.  Even if their own preferred policy (inflation targeting) calls for easier money.

PS.  Over at Econlog I have a related post on the IMF’s shameful record.

HT:  Michael Darda

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