In Your Face

The Penny Has Finally Dropped

I see that there was a “dust up” this weekend, at the G7 talks, between the President of the European Central Bank (ECB) and the finance ministers of France and Germany.

The leaks from this meeting suggest that the finance ministers are more than a tad “peeved” at the ECB’s refusal to cut rates.

The finance ministers know that they are unable to kick start their sluggish recession bound economies, as long as Europe’s interest rates remain at the current levels.

Jean-Claude Trichet (President of the ECB) knows that as long as it is the ECB’s mission to take a European wide view with regard to inflation, he cannot reduce interest rates at the behest of France and Germany.

Gordon Brown (the UK’s Chancellor of the Exchequer) can look on with a smile of smug self-satisfaction. The UK remains outside of the Euro, and therefore outside of the remit of the ECB.

I have noted before that the European Union cannot succeed in micro managing the economies of its member states (see The Impact of The Euro); as long as there is a single currency managed by a central bank. In my view the EU, in its present form, is destined to fail.

It seems that the finance ministers of France and Germany have only just realised this. The “penny has finally dropped”.