Wall Street Journal
March 7, 2011
If further proof were needed that a one-size-fits all interest rate cannot suit 17 diverse economies, European Central Bank boss Jean-Claude Trichet provided it by hinting—merely hinting—that he is considering raising interest rates by a mere 0.25%.
Gnashing of teeth in Athens, Lisbon, Madrid and Dublin, where such an impediment to growth adds to the problem of bringing the nations' books into some semblance of order. Tough luck: "The ECB will raise interest rates despite the problems in the peripheral countries," notes chief economist Dr. Jörg Krämer of Commerzbank. Add what appears to be an agreement in Helsinki on Friday to push forward with the "competitiveness pact," which makes reforms such as a constitutional requirement for balanced budgets a precondition of further aid, and there is gloom in the land of the broke.
Smiles in Berlin and Paris. In Berlin because Germans are inflation-phobic, and, their booming economy is unlikely to be derailed by a tweak in interest rates. In Paris because President Nicolas Sarkozy needs a voter-proof Chancellor Angela Merkel to press forward with their plans to harmonize taxes in, and centralize economic management of, the euro zone (sotto voce: in Franco-German hands), a long-held goal of French policy. An inflation-fighting ECB is key to her ability to persuade Germany's voters to spend more hard-earned money bailing out easy-living Greece, Portugal and other Club Med countries that enjoy the lolling effects of what Keats called "a beaker full of the warm South," while Germans shovel snow.
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