To agree with John Quiggin, the mystery to my mind of current European Central Bank policy is why are they insisting on money that’s too tight for German interests? It’s easy to see why the ECB isn’t implementing policy that as loose as would be optimal for Spain or Ireland. And it’s true that on some level there’s simply no way to set ECB policy in a way that works for everyone. But what they’re doing is too tight even for Germany where, for all the bragging, the actual output recovery has been kind of unimpressive.
After all, if the German industrial dynamo was really firing as robustly as sometimes people say you’d expect to see factories expanding operations and hiring workers away from the German service sector. Then unemployment Spaniards and Irishmen would migrate to work German service jobs. It’s true that Europe’s labor markets are imperfectly integrated, but they’re not that unintegrated either. If there was a true boom in Germany, people would make there way over there.