bagnap

ECB Ignores Deflation at Its Own Peril

Paul, I kinda think that your argument is a little inconsistent in a couple of ways.

Firstly, you seem to imply that the ECB is more likely than not to keep rates on hold (or maybe with a slight downward bias) but without drastic monetization measures.

Everything else remaining the same, this would result in upwards pressure on the Euro relative to the dollar, especially if you are contrasting the european policy measures with the US.

I take your point that there may be some risk of the EU coming apart, but predicting that on the basis that Spain and Ireland are having a hard economic time right now....surely their policy makers would look north to Iceland and say something like:

"Well, we are a small country coming out of a oversupply of credit and dealing with its consquences. Thank God we're in the EU. Look what would have been imposed on us (i.e. IMF high rates etc) if we'd been on our own".

I'd be interested to hear your view on this.