Europe’s new low

By Ben Walsh
January 9, 2014

Mario Draghi is back in unfortunately familiar territory. Reuters writes: “the European Central Bank on Thursday forcefully underlined its determination to take action” if something that is already a problem becomes even more of a problem. Today, the ECB held rates steady and Draghi addressed Europe’s latest inflation reading of 0.8% in December, which is still well below the central bank’s 2% target. Excluding fuel and food, inflation hit a record low of 0.7%.

Antonio Fatas parses an interview Draghi gave with Der Spiegel, and likes “his honesty and clarity when he asserts that all German fears about increasing inflation in the Euro area have turned to be wrong”. Fatas is unsure, however, whether Draghi can do much, against both Germany’s objections and his own structural limitations, to move inflation higher.

Worryingly low inflation is not a new phenomenon in Europe. In November, Ryan looked at the growing fear of disinflation, if not deflation, in Europe. Matt Yglesias doesn’t think the ECB is being forceful on inflation. On the contrary, he argues it is being unacceptably blasé:

They’re saying it doesn’t matter that they undershot their inflation target in 2013 because after undershooting it again in 2014 they’re on course to undershoot it less drastically in 2015 and then by 2016 they should be back on track.

Another persistently concerning trend: unemployment in the euro zone has now stayed at a record high of 12.1% for eight months. And youth unemployment is much, much worse, with jobless rates for young adults above 50% in Greece and Spain. The rate of change has been rapid: since 2008, the unemployment rate among 15-24 year-olds in Greece, Spain, Portugal, Italy, and Ireland has increased 15 percentage points or more.

Bloomberg View’s Nicholas Crafts comes away with a dismal assessment of Europe’s economy: “In some ways, the euro area’s prospects are more challenging than the parallel with the Great Depression suggests. If only things were as bad as in the 1930s…” Crafts argues that avoiding deflation is crucial, but at some point, high unemployment and low growth will force the ECB to contemplate things like “debt forgiveness, debt restructuring and outright default” among member states.

Marco Buti, the European Commission’s Director-General for Economic and Financial Affairs, lays out a “consistent trinity for the Eurozone”: safeguard member states’ social safety nets, realize that “vulnerable economies cannot reduce their debts and simultaneously gain competitiveness”, and create a truly integrated financial system. Reuters’ Jason Lange echoes the idea that a stronger banking union could help boost the euro zone’s economy. But like so many other potential reforms, Germany is opposed to that idea. — Ben Walsh

On to today’s links:

Equals
Is there an education penalty for women? – Shane Ferro

Must Read
Roger Ailes’ American idyll: ideological battles, personal vendettas, and a terrorism-proof panic room – Gabriel Sherman

Bitcoin
Inside the bizarre, fantastical world of Bitcoin mining – Bloomberg Businessweek

Housing
Home price gains in 2013 were caused by a post-crisis bounce, not job growth – Jed Kolko

It’s Academic
“Mathew Martoma … was expelled from Harvard Law School in 1999 for creating a false transcript” - Matthew Goldstein

Primary Sources
The full text of New York AG / BlackRock settlement – NY Attorney General

Tech
“We are Huxleying ourselves into the full Orwell” – Cory Doctorow

New Normal
Lenders are using social media data to determine your creditworthiness – WSJ

Old Normal
Illegal yellow margarine – Mental Floss

Oxpeckers
The reluctant patriot: how George Orwell reconciled himself with England – New Statesman
George Will hates fuel efficiency, doesn’t understand numbers – Jonathan Chait
“Blogs live” – David Weinberger

Big Brother Inc.
Gatsby’s Q score: will fiction be crowd-tested? – Laura Miller

So Hot Right Now
“In cocktails Parisians can taste liberation from wine’s outsize role in French culture” – Punch

Sad But True
“There are, bluntly, too many lackluster, forgettable and just plain bad movies” – Manohla Dargis

Pivots
The former mouthpiece of apartheid is now one of the world’s most successful tech investors – John McDuling

Charts
Fun with per capita incomes – Urbanophile

Legalese
Senator Warren wants the public to know when “government settlement” actually means “tax break” – Elizabeth Warren

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