Monday, August 25, 2014

So Europe is on track

Over the weekend, Draghi spoke at the Jackson Hole economic symposium.
He addressed the absolute disaster that unemployment in the Eurozone has been, but also made the case that the ECB has been somewhat limited in its ability to address the economic situation in the bloc because of austerity measures taken by European governments.  Ok so first off, Draghi has no control over fiscal policy (he can have a word, but nothing else) .  Moreover, when European government put the breaks to spending (largely at the urging if the ECB -- with an objective to cut deficits) the impact was, surprise, surprise, economic contraction.
Amazingly, the ECB is now saying "it's not us, we didn't tell Portugal, Spain, and their friends to cut spending". Guess what then, European countries put pressure on their economy to stem the flow of capital out -- so that the pain would be mitigated, the ECB was surprise of this outcome -- "Sovereign pressures also interrupted the homogenous transmission of monetary policy across the euro area,".  
The shocking part is that there is no shame here, that telling government that they had to curtail expenditure to meet some predetermined budget deficit targets, that the ECB would not think that governments would yes try to raise revenues, but also cut revenues.
Europe is a mess, the market noticed this incongruous statement and it's illogical conclusion.  But then the ECB just saw its objectives, and didn't account for unexpected consequences! 


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