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Can Draghi Solve EU Inflation Disparity?

Posted by: Ben Vickers on November 3, 2011


ECB President Mario Draghi may have to take another look at euro-zone inflation. His predecessor in the post, Jean-Claude Trichet, never tired of saying how the bank had delivered the longest period of price stability Europe had ever seen. And he was right: euro-zone price increases excluding energy have largely fluctuated between 1 percent and 2.5 percent ever since the single currency began circulating almost ten years ago.

However, the ECB’s claim hides important regional differences that help explain some of the tensions that have surfaced in the debt crisis. Inflation in Germany has been below the ECB’s 2 percent target every year except one since the euro was introduced. Meanwhile, inflation in countries such as Spain, Portugal and Greece has consistently been higher than the ECB’s target.


Portuguese inflation has been above 2 percent in seven out of the past ten years, almost reaching 4 percent in 2002. Spain has fared worse, with inflation above 3 percent in five out of ten years. Inflation in Greece has been well above 3 percent in four years and has never dropped close to 2 percent.

The effect of these different rates of inflation has been to effectively impoverish consumers in so-called peripheral euro nations relative to their German counterparts. The ECB has a remit to maintain price stability in the medium term for the whole region - but these regional differences need to be reversed if other measures to improve the competitiveness of peripheral nations are to have full effect.

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February 5, 2012 6:24 AM

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February 7, 2012 1:28 AM

The Rule of Law is paoitvl to our society. One law for ALL. Sharia (Islamic law) is a throwup from the seventh and eighth centuries. Is it like the curate’s egg, “in parts it is excellent”? I am personally appalled that ANY parts of Islamic law should be given recognition for ANY civilly recognized purpose in our pluralist democracy with its acceptance of universal human rights (not half rights for women).Islamic finance – which essentially seeks to “weave a tangled web when others we seek to deceive” over the issue of interest, which it labels as usury – is suggested by some as “acceptable sharia”. Well, in Hamlet Polonius tells his son Laertes “Neither a borrower nor a lender be, for oft a loan loses both itself and friend, and borrowing dulls the edge of husbandry.” Fine, “frugal” sentiments; but if practised literally (no loans), they’d put the 20th and 21st century out of business. And we don’t follow them.Sharia’s fixation on interest as usury is a cultural problem for some Muslims but certainly not others. When last I checked, Indonesian banks generally were paying interest on deposits. Indonesians are well aware of what the current interest rate is that’s set by the Bank of Indonesia. This is the largest Muslim country in the world. My robustly held view is that if Muslims don’t want to live in our sinful world of interest, then they don’t have to live here.In the UK, Muslims have been seeking student loans for their studies which don’t require interest. Good luck to them, but if I were a bank shareholder I’d not be interested in lending to them, and as a taxpayer, I think our HECS scheme is pretty fair. The bottom line is: this is how we do it in our society. It IS still our society, isn’t it? If they don’t like it, don’t live here.Other aspects of sharia, to do with marriage, inheritance, and especially criminal law (which for them includes also issues of morality which we regard as matters of personal conscience rather than matters for the criminal law), are comprehensively UNACCEPTABLE, incompatible with Western values.Muslim spokesmen like Iqbal Patel have called for the recognition of polygamy (since backtracked on, but undoubtedly to be raised again in the future). ALL of this stuff is objectionable, and amounts to a rejection of the host culture. I am heartily sick of it.It is NOT RACISM to point out aspects of another CULTURE which are incompatible with, or positively inimical to, the host country’s culture and civilization.


March 2, 2012 4:24 PM

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