Comments: Italy catches a cold, and the euro looks sickly

SECTION 2A—Monetary Policy Objectives

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

Wouldn't the European situation be improved enormously if the ECB was simply given the same objectives as the Federal Reserve - ie. additional objectives to increase production and maximise employment?

Posted by David Sandiford at June 12, 2005 12:11 PM

Yes, but who's economy's maximum employment - France, Greece or the area as a whole?

Posted by Giles at June 12, 2005 07:31 PM

There’s a handy list of EU unemployment figures here:

(Note the bloated URL – typical.)

I’m assuming most people would say that average unemployment rates of 8.9% for the EU/Eurozone and 10% for France, Germany, Spain and Greece are all too high.

Therefore if the ECB had to balance unemployment against inflation then clearly the balance has to shift towards reducing unemployment. That means a rate cut – not ending the euro. (Anatole Kaletsky makes the case in The Times today).

However, there’s a danger in questioning the euro’s future at all of falling for the same sort of unsubstantiated assertions and rhetorical questions that were used to justify the Iraq invasion.

Just because the French and Dutch voted against the constitution doesn’t actually say anything about the euro. The vote has been interpreted by lots of people with predefined ideas to justify their own thinking. Equally, an opportunistic Italian speculating and another asking rhetorical questions about other currencies don’t justify ending the euro either.

What annoys me is that there are too many politicians that are happy to discuss all issues in terms of some abstract model of how things ought to be rather than take practical steps to make things better. European politics has been taken over by advocates (e.g. Tony Blair), rather than managers.

However if Alan Greenspan keeps on raising US interest rates, as seems likely, the euro issue may fade and the focus can go back to practicalities – or ‘structural reform’ as they call it.

Posted by David Sandiford at June 13, 2005 07:52 AM

Glad to see you both back. I don't doubt that the ECB could have done more; I do doubt that it could ever have done enough. Real interest rates in euroland have been zero to mildly negative. The ECB could have gone for the Japanese option of zero nominal rates but even then we would still be debating Europe's deeper structural problems.

Posted by David Smith at June 13, 2005 09:10 AM

"no vote, which the polls say would be assured, would be a much bigger setback for the EU than the French and Dutch constitution votes."

What poll? I have heard that 60% in Italy in latest polls are opposed to ditching the Euro, with 27% in favour of withdrawl.

Methinks that the writer of this article is mixing up "No to withdrawal" to "No to the Euro" in opinion polls.

Anyway, 500,000 signatures doesnt automatically mean a referendum. The Italian Constitutional Court vets all petitions for a referendum, and in the past has ruled that existing EU rules cannot be the subject of this kind of referendum. Also, a referendum cannot be held in the year leading up to a general election, or in the 6 months afterwards. Also, it must be held between April and June. This would push a referendum to 2007 at the earliest, and who knows what state the Italian economy will be in by then.

The Irish economy is doing fine in the Euro.

Posted by Brian Boru at July 19, 2005 01:48 PM

Also, a turnout less than 51% makes the result invalid under Italian law.

Posted by Brian Boru at July 19, 2005 01:51 PM