“Dial D for Deflation” declared the Economist in 2002 in an article which amazingly is still available online. Since Alan Greenspan officially declared the deflation scare over, the word has hardly cropped up in economic debates.
Yet anyone looking at the rapid rise in value of the euro, and the absence of growth in some key economies – Germany, Italy – could have been forgiven for thinking that the ‘all clear’ signal was being given a bit too soon.
Well I suppose it’s better to end the week on a bang rather than a whimper, so here I go with another of those posts. What really ended the week on a high note (or should I say a low one) was the US labour market. And since I am arguing that the euro-dollar parity is being driven at the moment by US labour market data, this news can only mean one thing: more upward pressure on the euro. Which makes me only want to re-iterate, and even more strongly, that an important opportunity was wasted yesterday to take some remedial action by lowering the interest rate. Remedial action which would also have supplied a much needed lifeline to Germany’s beleagured economy. But this, like so many things, was not to be. Continue reading →