ECB Slammed as Europe Crumbles
August 15th, 2008Europe tied itself to the mast of the doomed United States Ship of Fools; Germany more than any of the rest. Who’s leading the way down in Europe? Germany.
Blaming the ECB is convenient because it avoids questioning the absurd assumptions of neo liberalism and fractional reserve banking.
Via: Telegraph:
The economies of Germany, France and Italy all contracted in the first quarter and may now be in full recession, shattering assumptions that Europe would prove able to shrug off the effects of the credit crunch.
The picture is darkening so fast in Spain that Prime Minister Jose Luis Zapatero cancelled holidays and called his cabinet back to Madrid yesterday for the first emergency session of its kind since the Franco dictatorship. The crisis meeting agreed to a €20bn (£16bn) blitz on public works, tax cuts, and a mortgage rescue to halt the downward spiral.
Growth has turned negative in Ireland, Denmark, Latvia, and Estonia, while grinding to a halt in Sweden and The Netherlands. Iceland contracted by a staggering 3.7pc. The grim data from Eurostat follows a recession warning in Britain, and shock news that the Japanese economy had shrunk 0.6pc in the second quarter.
Almost the entire bloc of rich Organisation for Economic Co-operation and Development (OECD) countries – still two thirds of the world economy – are now in the grip of a major downturn. The oil shock over the early summer appears to have had a dramatic effect on the heavy industries of Japan and Germany.
The eurozone as a whole shrank by 0.2pc, the first contraction since the launch of the single currency a decade ago. Germany led the slide with a fall of 0.5pc. France and Italy fell 0.3pc. The delayed effects of the strong euro, tight credit, and slowing exports have now kicked in with a vengeance.
“This is an alarm warning for the economy,” said the Confederation of German Industry (BDI).
The European Central Bank and its president Jean-Claude Trichet appear to have misjudged the severity of the downturn, and may have made a serious error by raising interest rates a quarter point to 4.25pc last month.
By then it was already clear that property markets were slumping across much of the region. “What is shocking is the speed of the collapse in Germany,” said Albert Edwards, global strategist at Société Générale. “I think there has been a lot of hubris at the ECB. They took a derisory attitude towards the US, saying the Federal Reserve was too aggressive in cutting rates. Now they are reaping the bitter reward of their policy,” he said.
The ultra-hawkish Bundesbank’s Axel Weber gave no hint yesterday that the ECB is softening, suggesting that the bank sees a deliberate crunch as the only means to pre-empt a 1970s-style wage-price spiral. “The confidence expressed by some observers that weaker economic growth will lead to a damping of inflation pressures is in my opinion premature,” he said.
Research Credit: efs
