Meanwhile, As for the Economy on This Side of the Pond . . .

Over there in the US you’re still dealing with your Credit Crisis and all related issues – like which august financial institution will topple next, and will the Fed be able to patch together some solution that keeps the markets from panicking yet one more time. Over here in Europe, though, things are rather different, as we’re reminded by Financial Times Deutschland reporter Mark Schrörs writing from Frankfurt (High Wage Settlements Brake the ECB).

You read that headline-translation right: as Schrörs reports, those wacky German public-sector unions have once again gone a bit crazy with their latest wage-negotiation rounds, securing a five-percent raise for this year and three percent for next. Inflation generally is the affliction tormenting the Eurozone most these days; the yearly-equivalent rise in prices in March of 3.5% was the highest in Eurozone record (of course, the Eurozone has only existed since the beginning of 1999). The upshot is that, while the US Fed seemingly can’t push its discount rate low enough, a vast majority expect the European Central Bank to leave its signpost interest rate untouched at 4% at the next meeting of its Board of Governors set for this Thursday (10 April).

Inflation is on its way to add its bit to the USA’s economic troubles as well, mainly via higher prices for imports caused by the weakness of the dollar, a weakness this continued contrast in rate-setting policies on either side of the Atlantic will hardly do anything to address. Then again, it’s clear the dollar (and therefore inflation) figures very low on the list of problems American economic authorities find themselves needing to address. And over here, even though Schrörs reports fears circulating in central banking circules of setting off a wage-price spiral (surely overblown?), the economies are still looking robust. He quotes economist Stephane Deo, of Switzerland’s UBS bank: “The real economy in the Eurozone is more capable of resistance than expected.” (Of course, Deo himself may shortly find his job gone since UBS is itself in big trouble, as the New York Times illustrated today in a long article. But that is only because UBS got caught itself caught up big-time in the American sub-prime mortgage troubles.)

Wait a second: most European economies are still looking pretty good. As usual, though, the European Central Bank’s task of finding that “just right” monetary policy to steer between inflation and recession is further complicated by different countries within the Eurozone facing different economic conditions calling for different, often mutually-exclusive economic measures. These days it is Italy that is close to slipping into its own recession – not for reasons anywhere close to what has happened recently in America, but, interestingly, also with a general election coming up soon.

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