Money Gets Even Tighter in Europe

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The European Central Bank has raised interest rates yet again, despite the persistence of very high unemployment outside the core EU countries. Why? Because continued low interest rates might run the risk of overheating things in Germany, where the economy is fairly strong. Matt Yglesias argues that this would be fine:

If you think about the problem of divergence between the low unemployment German-led “core” block and the high unemployment periphery, it seems to me that persistent labor shortages in the “core” are exactly what’s needed. That should either induce migration from Spain, Portugal, etc. northward to where the jobs are or else induce core-based firms to find ways to shift some production to the periphery. Obviously, that’s not an ideal strategy….

He’s right, of course, but “not ideal” is a considerable understatement. The German public, which is already being asked to bail out the Greeks and Irish and the Portuguese, would go berserk if the ECB deliberately followed a policy that encouraged either outsourcing of German business
or migration into Germany from countries on the periphery. The ECB knows this perfectly well, despite its supposedly nonpolitical mandate, and it also knows perfectly well that German support is still critical to the success of the euro project going forward. So monetary policy will continue to be made with Europe’s core countries in mind, and the rest of the euro area will just have to live with it.

Whether that works out in the long run is a very good question. We’ll see.

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Fact:

In-depth journalism that investigates the powerful takes real money and is so damn important right now.But it doesn’t take a Mother Jones investigation to know that billionaires and corporations will never fund the type of reporting (like they do politicians) we do that exists to help bring about change. Instead, our mission-driven journalism is made possible by people power, and has been for 46 years now since our founding as a non-profit.

In “TITLE TK” Monica Bauerlein writes about the perilous moment we’re in, and why it’s so important that we raise $325,000 by the time November’s midterms are decided so we can be ready to throw everything we have at the big issues facing the nation no matter what happens. Please help MoJo’s people-powered journalism with a donation today.

$400,000 to go!

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