French leading presidential candidate prays for inflation
The leading in polls presidential candidate in France Francois Hollande obviously is praying for a massive money-print and galloping inflation as a mean to fight the EU debt crisis. In an radio interview he pointed 2 possible ways of going out of crisis. Both ways do not request anything from governments, but charge with responsibility the European Central Bank (ECB). The first way is the interest rates to be decreased (now they are at record low of 1% and in fact much more decrease is nowhere). The second way is to be allowed to ECB to buy directly government debt financing this way the governments.
Obviously Mr Hollande does not see any problem in the government spending that
created deficits and debts and has no idea of implementing reforms in the heavy
French bureaucracy and super generous social system. Instead the missing
tax-income must be compensated by easy money printed by ECB. I would ask if the
money was gold how Mr Hollande would print them for achieving such an easy
decision? But in fact even with using paper money the money-print is not a
decision. It is a problem more and not a decision...
The Central bank is not an instrument of politics. Every time any politic
decides that the decision can be found in Central bank activity, the result is
Low interest rates at periods of excessive inflation mean more inflation. Even
at the moment the interests are too low, considering that even the official
inflation is above the 2% ceiling (it is 2,7%). The real inflation is even
higher. So in fact if ECB is to do its main job, it has to raise the interest
rates to keep the price stability. At the moment ECB is already in a big compromise
with its own principles and this ruins the confidence in it and in euro.
ECB is in compromise even with government debt purchases. ECB is buying hundreds
of billions of debt, although this is absolutely prohibited by EU treaties.
The result of all this are pumped up energy and food prices and accelerating
inflation. And this is even without Mr Hollande being a President. I can
imagine what will happen with the euro and with ECB if he becomes a president
of France and implements all this madness in real policy.
The problem of EU is in EU politics and Mr Hollande is a good instance for
that. The problem is not in Euro and in ECB. In fact even the current French
President Nickolas Sarkosy is too left-minded, although he calls himself a
right-politician. But Mr Hollande obviously is a heavy-left utopist that can
work hardly to make the situation worse...
April 20th 2012