Posted by WARREN MOSLER on January 27th, 2011
The problem with the euro zone trying to keep the costs of imports down in this context is that it can only be done via a strong currency, which works against their desire to increase net exports, and even that doesn’t necessarily work if the foreign supplier has sufficient pricing power, as the Saudis do with crude prices.
It’s all about the struggle to optimize real terms of trade, which is difficult enough when the leadership understands the real issue as well as the monetary system.
Unfortunately they don’t seem to understand either one, and their real standard of living pays the price.
These are very hawkish comments from one of the more centrist and
pragmatic Governing Council members. ECB starting to realize that the
austerity measures taking place are only in 12% of Euro GDP (the PIGS).
The remaining 88% increasingly going in a different direction in terms
of macro performance.
5:31 ECB Bini Smaghi: “Core” CPI Losing Its Relevance
5:31 ECB Bini Smaghi: Deflation Risks Were Overestimated
5:30 *BINI SMAGHI: EURO AREA MUST `SIGNIFICANTLY’ CONTAIN COSTS
5:30 *BINI SMAGHI: RISING RISK OF `SECOND ROUND EFFECTS’ OF INFLATION
5:30 *BINI SMAGHI SEES HIGHER INFLATION FROM EMERGING MARKET PRODUCTS
5:30 *BINI SMAGHI: PAST SHOWS TENDENCY TO UNDERESTIMATE INFLATION
5:30 *ECB’S BINI SMAGHI: IMPORTED INFLATION CAN NO LONGER BE IGNORED