Jean-Claude Trichet did not let Sarkozy's latest swipe at the European Central Bank go unanswered. His defense demonstrates that he is not above playing the politician un peu démago when necessary to respond to an adversary. Sarko, who prefers sports metaphors to Taylor's rule, likes to say that he's prepared to compete but only if the game isn't rigged. The United States, he insists, is guilty of "le dumping monétaire," an unnecessarily franglais way of pointing out that the Fed has chosen to reduce interest rates in response to the credit crunch rather than respond to the uptick in inflation. Trichet's response is twofold: political and economic. He notes that the ECB's single mandate--to ensure price stability--was the choice of "the European democracies" and that Eurobarometer polling shows that price stability is the number one issue in the minds of European voters. He also notes that 15.7 million jobs have been created in Europe since the adoption of the euro, and that Europe's performance in this respect is slightly better than that of the US. This economic justification is worth what it is worth, and it would be a bold economist indeed who dared to assert what Trichet strongly implies, that it was ECB vigilance alone that deserves credit for this job growth. But since he's fighting on Sarko's terrain--the media--rather than giving a seminar, one has to concede that he gave as good as he got. Nevertheless, this quarrel is more than a little tired, and the fundamentals of the situation will probably force both men soon to alter their rhetoric. The demand that is driving commodity inflation currently isn't coming from Europe, so braking the European economy further isn't going to do much to slow it.
But there is always the risk of a price-wage spiral, and the opinions of economists diverge as to the likelihood and iminence of this threat.
Sunday, July 6, 2008
Former Japanese prime minister Shinzo Abe reports that Nicolas Sarkozy used harsh words in a heated dispute with George Bush over environmental policy at the G8 summit last year. The press at the time was reporting on the newly amicable relationship between the US and France and affixing the sobriquet "Sarkozy the American" to the recently elected French president. Rien que de l'esbroufe.