July 18, 2005

The European Central Bank Haughty indifference, or masterly inactivity?

I am not an economist, but there is an interesting article in The Economist aboutThe European Central Bank. Apparently the very poor performance of the Eurozone is not because of the rates being to high, as :
A widely used test of the tightness of monetary policy is the Taylor rule, which calculates the “correct” interest rate according to the amount of spare capacity in the economy and the deviation of inflation from its desired target. What does it say about interest rates in the euro area? Calculations by David Mackie, of J.P. Morgan, show that virtually throughout the past six years, interest rates in the euro area have been lower than a Taylor rule would have prescribed
while they may have been wrong for the individual member states they where not overal too high, and they have been historically very low with
Real interest rates in the euro area have been negative or near zero for most of the past two years, their lowest for more than 25 years.
So the problem is not the interest rates. Nor is it the torrent of (over)regulation coming out of Brussels as the UK is also subject to that and has faired better despite implementing and enforcing more of them. So the only candidate left is the precious European Social Model.


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