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Europe’s Economic Missteps

Inflation is Europe’s phantom menace. Its Central Bank’s obsession over rising prices has determined its fiscal and monetary policy to the detriment of overcoming the recession. 

What’s the Latest Development?

Europe’s equivalent to the Federal Reserve, the European Central Bank (E.C.B.), recently bought government bonds from both Italy and Spain to shore up concerns about levels of sovereign debt among E.U. member states. But the current debt crisis has largely been aggravated by the E.C.B.’s past decisions to incrementally raise interest rates and reduce the money supply. And while low inflation might seem to benefit the Germans, whose economy is best weathering the storm, austerity measures damage the export business on which they depend greatly. 

What’s the Big Idea?

Since 2008, the E.C.B. has been at odds with the U.S. and England over how to deal with the global economic slowdown. But Europe’s policy missteps might be ill-informed by public opinion. “Most studies of moderate inflation find that its costs are quite small, but a study of elections in thirteen European countries from the nineteen-sixties to the nineties found that voters were far more likely to toss out politicians when inflation rose than when unemployment did.” In the future, the E.C.B. must face the larger issue of a continent-wide recession. 


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