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By ATWadmin On June 24th, 2008

OH NO! As if was not bad enough that Ireland has rejected the EU Constitution, it is now reported that the European Central Bank’s dilemma over interest rates has deepened as new figures pointed to a “toxic cocktail” of stagnant growth and spiralling inflation. 

Jean-Claude Trichet, the President of the ECB, hinted this month that borrowing costs would rise to control inflation, which has soared to a record 3.7 per cent. However, there was growing speculation that the ECB may keep rates at 4 per cent at its next rate meeting on July 3 after European manufacturing and service companies reported declining activity for the first time in five years and corporate sentiment in Germany plunged. The RBS/Markit Eurozone Purchasing Managers Index (PMI) for both the manufacturing and service sectors fell to a five-year low of 49.5 in June, down from 51.1 in May. Any figure below 50 indicates contraction.

A contracting EU wide economy but only one blunt ECB nstrument to control inflation across diverse Nations. Economic disaster beckons…

4 Responses to “EU SLUMPS”

  1. The problem is unnatural inflation caused by the rising price of oil. That prevents the interest rate cuts required to boost the slowing economy.

    It’s a problem everywhere not just the EU.

    The obvious solution is to slash the taxes on fuel and slash interest rates too. The rising price has not cut consumption and tax cuts won’t increase it. Demand for oil is inelastic. The only thing preventing the obvious solution to a unique set of circumstances is global warming ideological piety

    It will happen eventually but we’ll suffer needlessly first.

  2. The rising price has not cut consumption

    There is anecdotal evidence of slower motorway driving. Also, Stenna have announced that they are slowing down the speed of their ferry between Belfast and Stranraer. Straws in the wind maybe, but evidence that fuel consumption does respond to price rises, even if the enormous tax take distorts the mechanism.

  3. Peter

    That’s all very fine and marginal but real elasticity would mean people leaving their cars at home. For the vast majority of people that is impossible.

    We are being punitively taxed for simply going to work.

    Now, I buy into a lot of the anti-car agenda for infrastructural and efficiency reasons but it is about providing the alternatives and then the inducements.

    The economic situation we are in now needs a specific fix to unblock the logjam.

    The effect on the public finances at a time when other activity is slowing down is the biggest problem with my suggestion. But a long term slump would be far worse from thta point of view.

  4. This single digit inflation of 3.7% doesn’t seem awfully high to me. In 1978 it was around 20%.

    As for motoring, why not buy the new Indian made ‘Tata Nano’.
    In heavy traffic it runs on the fumes of other cars.