Diary of a Financier

It’s the Inflation, Stupid

In Economics on Tue 13 Sep 2011 at 08:35

I’m enraged by a conversation I had with a market professional this morning regarding the Euro Crisis.

It’s not as simple as Germany putting up capital to paper over the Eurozone’s fringe. Let us not lose sight of the cause/effect, the give/take.  Inflation is the backlash, just like it was when ERM I dissolved on Black Wednesday.

France just reported the highest inflation in three years, an annualized 2.4% in August.  The core is experiencing inflation levels at or above highs in the history of the currency bloc (1999-present). This occurred despite the ECB having raised interest rates twice recently.  At the heart of the dilemma in Europe is the bifurcation of the EMU constituents.  They raised rates (for God’s sake) in the middle of a crisis to stop inflation in the core.  It didn’t work… and the crisis is still here.  A gander at core states’ inflation:

Germany Inflation

France Inflation

Belgium Inflation

An orchestrated bailout risks catapulting inflation to untenable levels in the Eurozone core.  Don’t ever lose sight of the backlash.


  1. And inflation is EXACTLY what we need, stupid writer. It’s the only way any country has ever managed to deflate its debt to GDP. So rich coupon clippers get shafted – my heart bleeds.

    • Not sure if you read the piece, but the point was that at the time (September) people were talking about the Eurocrisis being simply fixed by a €1.5T Eurobond.

      My suggestion was that it wasn’t that simple; it wasn’t a matter of the ECB discussing whether or not the currency could sustain such a bazooka blast without collapsing. It was trickier, because of the bifurcation between the PIIGS & Germany threatened the latter with hyperinflation were they to pursue that fix.

      My suggestion, “It’s the Inflation, Stupid” has since become a central tenant of the debate in Europe, so I was, well, correct in that assertion. I think your comment is focused on the US, otherwise please reevaluate.

  2. […] a September entry: It’s not as simple as Germany putting up capital to paper over the Eurozone’s fringe. Let us […]


Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s