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Your comments flag an important issue: the political leadership and the central bank must trust each other. In Europe, they obviously don't, the result of German mistrust of the "Club Med" countries, and Bundesbank taking its revenge on Kohl's (erroneous, with hindsight) decision to peg the ost mark to the Deutschemark after reunification.

Clinton/Rubin is a great example of an executive and a central bank working together to create favorable economic conditions. Chirac/Trichet is the exact opposite, leading to the chicken and egg pointed out by De Long.

That said, I don't really see how Europe's interest rates, at 2% with 2% inflation, can be seen in any way as tight. The ECB has been subject to an unimaginable amount of criticism, often contradictory (coming from the anglo-saxon business press and the London traders on one side and the unreconstructed French marxists and other assorted lefties and populists on the other), which in my view shows that they have been mostly right.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 21st, 2005 at 02:44:17 PM EST
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