More growth would obviously do a lot to help the Eurozone. For Spain and Italy, a healthy level of growth alone might be enough to pull them out of crisis mode. For Greece, more would have to be done, but it would be a strong start.
Unfortunately, that growth is being at least partially quashed by the outspoken desire of Germany (and thus the European Central Bank) to keep inflation low. High inflation in Germany would overcome the problem that the Eurozone currently has where wages in Spain, Greece and Portugal need to fall relative to those in the core, but are showing no signs of doing so.
Why is Germany so against inflation?
Well, the fact that high inflation would negatively impact the German economy is obviously a large part of it. But equally important is the experience of the German people in the 1930s. Put bluntly, there is a fear in Germany that high inflation leads to fascism.
Which is why the rise of Greek neo-nazis Golden Dawn (whose flag looks like an alternate-universe version of the swastika) could be a blessing in disguise. Albeit a really, really good disguise. Because the one thing Germany hates more than inflation is Nazis.
Greece has price of a little under 2 per cent. There are a lot of things causing the rise of their homegrown Nazis, but hyperinflation is not one of them. So right now Germans are seeing their worst nightmare happen even though they managed to keep inflation low across the Eurozone.
Could this mean that they’ll back off slightly over their overbearing desire to keep inflation low?
Well, so far there isn’t a huge amount of encouraging news. On Wednesday, the FT did report that:
A future German inflation rate above the eurozone average could be part of a natural adjustment process as crisis-hit countries pulled themselves out of recession, the Bundesbank argued in evidence to German parliamentarians.
Except that that was only a couple of days after the Bundesbank president wrote in the same paper that:
To prevent the recovery stalling, demands have been directed at the Eurosystem to deliver yet lower interest rates (or at least to forego raising them), yet more liquidity and even larger purchases of assets.
However, the assumption underlying such well-intentioned advice does not hold up to closer scrutiny.
So they don’t appear to have been spooked into monetary expansion anytime soon. Perhaps Golden Dawn aren’t really a blessing in disguise after all; sometimes, to misquote Freud, a Nazi is just a Nazi.