From Mish’s Global Economic Analysis – ECB’s “One Size Fits Germany” Policy; Portugal 10-Yr Debt at Record Yield; Greece, Ireland Near Highs; 3 Hikes by Year End? Rate Hikes to Stress PIIGS:
One Size Does Not Fit All
Pray tell what inflation is the ECB worried about?
One cannot find it in Greece, Spain, Ireland, or Portugal, where various austerity measures have reduced both jobs and wages.
Here’s a better question: Where was the ECB when credit was exploding in Spain and Ireland, fueling enormous property bubbles?
Nowhere is where. Inflation in Germany was close to 0%.
One Size Fits Germany
It was in the best interest of Germany to ignore reckless credit expansion elsewhere. Now, because gasoline prices are soaring in the wake of a crisis in Libya and the Mid-East, Trichet wants to be vigilant.
Here’s the deal. This has nothing to do with the price of oil or the price of anything else. Trichet is using the price of oil as an excuse to do what he wants to do, and that is hike.
Why does he want to hike? Because recent wage negotiations in Germany have headed much higher as noted by Factbox.
* Public Sector 3 Percent
* Chemical Industry 7 Percent
* German Construction Unions 5.9 Percent
Wages have collapsed in Ireland and Greece, and are lower in Spain and Portugal. However, Germany and France call the shots because they have the largest economies.
Those rate hikes will increase the already significant stress in the rest of the Eurozone.