Germany is belatedly flouting this with massive state aid, but that in turn is to destroy the competition framework needed to stop strong predators from pauperising weak states no longer able to fight back within the currency union by means of devaluation.
Loan demand by eurozone firms has fallen to the lowest since the Lehman crisis. Key measures of the money supply have been contracting at record rates. Producer price inflation has dropped to minus 12.4pc.
The longer this goes on, the greater the risk of metastasis. The Economic Cycle Research Institute in New York warns that the eurozone is on the cusp of a “self-reinforcing negative feedback loop” unless steps are taken to arrest it.
Far from trying to do so, the ECB is still draining the money supply. The full impact of the most aggressive rate cycle since the start of the euro has yet to feed through. Germany’s members on the ECB’s governing council are still talking about further rate rises.
No matter that inflation has collapsed to 2.9pc, and is in any case a lagging indicator; no matter that world commodity prices have been falling for eighteen months: Isabel Schnabel says the ECB must preempt the possibility that inflation could bounce back. “In long-distance running, the last mile is often said to be the hardest,” she said.
Michael Hüther, head of the German Economic Institute (IW), says the ECB is overlaying one error with another. “The ECB acted too late in reversing its highly expansionary monetary policy, and now it is in danger of doing the opposite out of a bad conscience. It runs the risk of pushing rates too high,” he said.
Dario Perkins, head of global macro at TS Lombard, said the ECB has already gone beyond that point. “Every month they spend in denial only compounds a series of policy mistakes. How deep this recession will be depends on how quickly they reverse course,” he said.
“This all went wrong in the middle of last year when they freaked out over all that nonsense about 1970s inflation, and started three-quarter-point rate hikes,” he said.
