A shocking number of American commentators and an even larger number of European policymakers continue to be worried about the specter of possible future inflation even as the opposite is happening right before our eyes:
The eurozone’s annual rate of inflation turned negative in June for the first time since the single currency was introduced in 1999. Prices in the 16-nation zone fell 0.1% in the past year, Eurostat said. The inflation rate had been 0% in May. Inflation in the eurozone has been dragged down by lower energy and food prices, and by falling demand for goods from companies and households.
This is, simply put, a disaster. In particular, the devastated economies of Spain and Ireland are never going to recover with this sort of thing going on. And that, in turn, is only going to make things worse for Germany and the rest of them. From the get-go the European response to the recession has been very misguided. And to a striking extent, the American debate continues not to recognize that the European Union has surpassed the United States of America in terms of the scale of its economy. Jean-Claude Trichet is the most important central banker in the world, and it’s extremely difficult for anything Barack Obama and Ben Bernanke try to do to work if the Europeans make poor choices.