Nail Biting Time Outside the ECB

Update: The ECB has now announced that it will leave rates unchanged for another month. This in my view is a mistake, essentially putting off the inevitable for another month – unless, that is, Trichet has info that tomorrow’s US employment numbers will be much better than expected. If not this is only going to lead to more upward pressure on the euro over the month, and a further month’s delay in offering stimulus to an overly lethargic euroland economy. I don’t buy the rapid-recovery-round-the-corner, ever-present-inflation-danger scenario.

While most observers look anxiously over to Frankfurt to see what they will finally decide, it might be worth just noting that Sweden has lowered its interest base rate. The current 2% rate is now the lowest in a century:

The Swedish Central bank cut its key interest rate by 50 basis points to 2 per cent on Thursday, its lowest level for a century, reflecting low inflation and rising unemployment in the Nordic region’s largest economy.

In a statement the central bank said the recent decline in inflation had been “greater than anticipated,” partly due to unexpectedly low import prices but also to a weaker labour market.

I am highlighting this decision lest those of you with wicked minds have come to the conclusion that I only take note of events which confirm my preoccupations about the viability of the euro. Sweden of course voted to stay out of the euro.

In fact as I reported on Bonoboland last month:

Compared with February 2003, all the Member States registered a decrease in their annual inflation rates. The biggest relative falls were in Sweden (3.3% to 0.2%), Finland (2.1% to 0.4%) and Denmark (2.9% to 0.7%)

Two of the three countries with a marked drop in inflation are not in the euro. So clearly having control of your own monetary policy is not the be-all and end-all of the problem. You also have to get the decisions right. Now let’s see if Sweden has been bold enough with today’s move.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

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