ECB: Inflation differentials in the euro area during the last decade

The November monthly bulletin features this article.

18 replies on “ECB: Inflation differentials in the euro area during the last decade”

Sorry I missed this bit – oh for an edit function etc.

“This is the first of a series of annual fare increases to be introduced over the coming years as the CIE group of companies struggles to make ends meet”

Don’t the Troika want us to privatise things like this and get more competitive?

Do these inflation figures take asset prices and in particular houses into account, or are they the usual ECB-lation figures, of use and relevance to absolutely no-one.

Given that Ireland is estimated to have had an average inflation rate of ~1% from 2002-2008, I’m guessing it was the latter. The price of a packet of Taytos belies that figure.

That’s quite a decent note.

If you don’t get round to reading it I would suggest at least having a look at

Chart 1 HICP inflation – deviation from the euro area

The Noddy take-away being that:

Germany was below the average inflation rate during the boom, the peripherals were a long way above it.

During the anti-boom, Greece has stayed way above (suggesting its position in the Euro is unsustainable) but equally interestingly, Germany has stayed below the average (exactly the opposite of what the EZ area requires, suggesting that Germany’s position in an un-shrunk EZ are is erm, questionable).

How realistic is it to have years of actual deflation in the periphery?

How realistic is it for German voters to be persuaded they must have years of inflation significantly above 2%?

If neither of those is realistic at all, then what is the chance of selling to the German public, the idea that Germany should engage in what by logical extension would appear to be the medium term can-kicking of debt write-offs for the periphery?

@ PR: “Don’t the Troika want us to privatise things like this and get more competitive?”

Privatise yes, but as an extractive monoply. Its a public extractive monopoly at the moment. Financials would love to get their hands on it – wonderful cash flow to loot.

@OMF: “The price of a packet of Taytos belies that figure.”

Used to be Mars bars! Very useful as price inflation trackers. You have to watch out for pre-packs – they keep pack ‘size’ the same, but you get less ‘content’. Very sneaky!

@ grumpy
How about you take a look at inflation rates (HICP) at Eurostat. In 2003 Unit labor cost in Germany were a little too high. We corrected and had only 1 % Inflation in that year. Since then Inflation in Germany averages 1.83%,


, the agreed upon of a little below 2%.

Small groups of deviants (Greece, Portugal, Ireland, etc. ) had higher rates. The difference is, as can be seen in Chart I, Ireland corrected its deviation, fully. Stupid, dysfunctional Greece continued on its rule violating ways.
How can there be any discussion, that it is the small, habitual criminal, rule violator, who has to correct its way?

When you then have a little closer look, at what years data are taken, and plotting against mean, instead of target, you find this subtle, criminogen attitude of “let us all cheat a little bit, and blame the guys who play by the rules”, like Germany, as it is so typical with spoiled brat countries in Europe today.

According to the Economist (

Germany is again exactly on target of 2.0%. Some others believe they do not have to play by the rules, agreements and treaties.


How about you (and some of the cream of Ireland’s intelligentsia’s “Pathway” and “Gateway” vendors) suggest answers to these questions:

How realistic is it to have years of actual deflation in the periphery?

How realistic is it for German voters to be persuaded they must have years of inflation significantly above 2%?

If neither of those is realistic at all, then what is the chance of selling to the German public, the idea that Germany should engage in what by logical extension would appear to be the medium term can-kicking of debt write-offs for the periphery?

@ grumpy,

I am not sure what your “pathway/gateway” is about. Googling common words like that does not look promising to me. Maybe you explain what you mean, to a foreigner?

We are not talking about any kind of deflation, meaning substantially „negative“ price development.

We are only talking about a little lower inflation. Even Ireland had positive inflation from 2008 – 2012.

And I can tell you from personal experience, 10 years ZERO inflation is ZERO PROBLEM. My rent was not raised since 2003, when I took a swipe at grocery prices, I came in at – 1%/a. German people took 3 years of ZERO nominal pension raises, and another 5 or more of sub inflation. Can be done.

Ireland did most of it already, maybe 2 more years of less inflation. Greece is a basket case, which still needs hard adjustments anyways. The whole notion that some tiny groups of violators are entitled to disturb the commonly agreed targets, this fundamentally criminal mindset still surprises me.

There were generous wage increases this year in Germany. Probably we will have a few years of 2.5 -3 % inflation, to smooth ULCs out across Europe. That’s it, and this is good enough.
If the people of Ireland default on debt to some banks, you will live with the respective consequences. Not my problem.

If the People of Ireland would decide to criminally default on the extremely generous help the People of Europe extended to you (ECB, EFSF, etc. ) , after the extremely generous pampering from the EU, to the extent of 100 % GDP (, you should better think carefully before this , about what you would do on the other side.

I think you would very deeply regret to commit such an anti-social crime.

What sort of auld bollix is “anti social crime”? Who died and made you boss? I find it deeply irritating to hear such frank racist language from someone from a country which has an indelible racist stain on its escutcheon. You exemplify the Churchillian adage re Germans: at your feet or at your throat

Calm down. I don’t for one see racism in G’s post. He’s simply the stereo-typical Northern creditor and saver. The Irish Govt should take note of what he is saying. These crs will not give you the steam off the proverbial. Wishful thinking from the Irish. However G is underestimating the power of a determined ‘debtor’…..the debtors have little (or at least increasingly less) to lose; the crs have much to lose. There will be leverage for the dr in that, eventually.

@ grumpy

a) Deflator
I did a calculation over the last 10 years, how far off everybody is with respect to the long term target : (a little below) 2.0%. The only ones significantly off is Greece 14 %, and Spain 9%. It is of course for them to correct their mistake. After the restraint of the last 4 years Ireland differs from Germany by a mere integral 1.6%, there are no corrections anymore necessary. Of course the Euro will continue to operate according to the treaty, inflation target only and no money printing.

b) Debt service costs
Germany Italy Spain Ireland Standard (EU “Norm”)
public debt (Eo 2011, % GDP) 82 120 66 105
Deficit (2012) -0.3% -2.8% -6.7% -8.8%

assumed peak (2014) 80% 130% 100% 130% 60%
coupon 3.0% 3.5% 3.5% 3.5% 4.0%
Inflation 2.0% 2.0% 2.0% 2.0% 2.0%

real interest payment (GDP) 0.8% 2.0% 1.5% 2.0% 1.2%
principal reduction 1.0% 3.5% 2.0% 3.5% 0.0%

pop growth -0.50% -0.50% -0.50% 1.00% -0.50%

sum debt service (GDP) 2.3% 6.0% 4.0% 4.5% 1.7%

population over 64 20.6% 20.3% 17.1% 11.6% 17.3%

account age structure for 70% 16.7% 20.2% 16.0% 12.6% 13.8%


We deflated house prices here until 2008 by a factor 1.9 too. You can run the general price level at minus 0.5% inflation for an infinite time. Japan proves that. This deflation horror only comes from the years 1929 – 1932, when the US run an integral deflation of minus 24%. That this causes money hoarding etc is very understandable, but completely different from very low values, which still leave some or at least near positive return on money in the bank.

b) Debt Service Cost
In the table above I calculated the effective debt service needed for various Euro countries. The 3.5% are the costs for your EU /IMF loans, and your present 5-year market values. The 3 / 3.5% represent the actual coupon payments for Germany / Italy. To say that Ireland can not service 1.5% LESS than Italy, is simply ridiculous. This is also the reason, why your IMF plan was so lenient with respect to deficit reduction. Give then favourable demographics, Ireland will enjoy in a few years a little higher living standard than average (Old) Europe, not counting the Balkans, but higher than in Eastern Germany!

All these calculations are not difficult, and are done by folks in Poland, Czech, Slovakia, Sweden Denmark, who are carefully watching. We want them in, they don’t want to pay for others mistakes, but also be assured, that when they get in trouble, and we all get, sooner or later, that they get adequate help. Getting our direct neighbors with an AAA morale on board, is at least 2x important compared to keep all GIPSI countries on.

I thank you for the hint with Blanchard, stirring the Eurobonds in this way, the recently brutally fudged financial “multipliers” -> confirmed criminal.

@ anewdawn

30 years ago, I thought if people hold grudges against the 3rd generation of Germans, it will just die down in 20 years or so.

If today, 80 years, or 3 generations later, somebody, especially from a country which was not involved in WWII utters such racist statements, and tries to blackmail me into accepting theft with that, well, gets him on the list of confirmed criminals. Theft and blackmail do not have to be successful to be punished with up to 5 years in jail.

@Paul W

I think you bring up a very important point.
The analysis of all this on our side is, that Merkel always talking nicely and patiently is mistaken as weakness, vulnerable to surprise attacks, blackmail.

To the point, that it obviously encourages again and again criminal attacks.
What surprised as for a while, why people try this, until we understood that different cultures tick differently.
People in Turkey, Greece, etc. think that that kind of attacks are part of the normal game and don’t have consequences.

Geithner, FR, UK tried to get their fingers on the german Gold -> Gold will be counted, molten and transferred home.

It has become obvious, that the Eurobonds were meant as an instrument to put the german tax payer on the hook for alien criminals, without any possibility to control the spending -> Eurobonds will not happen as long as I live, traitors who proposed them will be hunted down(politically) in the next elections.

Banking union as an obvious mean to get the thievish fingers on German savings, same thing -> We now install a bank supervision, which will first dig up all the skeletons in all countries, and only after taking stock and installing executional powers there will be any talk on maybe some partial careful insurance scheme

Papandreou tries to renege on his part of the agreement -> gone.

Berlusconi broke his promises to the ECB -> gone. I will celebrate on the day he will move in jail.

Zapatero , gone. Whatever the Portuguese socialist was, gone.

Cameron? I showed the picture of his successor some folks in Summer 2010.

I think it furthers the discussion pretty efficiently, that you seem to believe that the People of Ireland would have little to lose, if they commit the capital crime of bankruptcy against the People of Europe. Somehow folks like you seem to believe that wouldn’t have consequences.

From my perspective you would save 5% GDP on the debt service. But how much lower would your GDP be, if you cut yourself off the continent? 50 % loss, 75%?

Now, how much would a country like Germany lose, if the trade with you stops?

First interest, some 30% of your 1.5% real interest times 180 b$, divided by 20 for population sizes = 0.8 b$ or 0.022% of my GDP
8% of your trade of avg export / import of 200 b$ (124 + 71), 5 % profit = 0.8 b$, anything I can not get at the same price in many other places? Please tell me.

But if half of your exports to me is stuff, I can then slam a 30% tax, import tariff on by myself, because it is amazon, google, apple, pharma and the likes, I make 1.5 billion plus versus 1.6 b$ loss.

Basically a wash.

But then of course I will hunt down any trade of yours, any global bank position, pari passu, and Germany is for that in a much better position than some hedge fund.

If the People of Ireland commit that crime, it would be probably profitable for me.

All these are not nice words, but after you talking “determined debtor”, it might clean the air, and focus your thoughts on profitable and honest things.

The crucial thing is that tolerating such crime would encourage more and larger crime from others.

Now I am curious for your response

Genauer. To me now you seem to be raving. And giving a bad reputation to Germans. Oh, sorry, is that punishable by 5y in jail? Get a grip man.

@ gtfaway,

I would have been very surprised, if you liked what I say.

I hope that I have now used the word “crime” often enough, to drive this point really home.

Driving home the point of debt sustainability and market requires a few more words than just some bullet point twitter statement.

To further ease your thinking about new versions of blackmail:

a) Lech Kaczyński tried to blackmail Germany on a gas pipeline from Russia -> the gas pipeline was built around Poland. The 2 streams are now working , built through AAA country territories. A little more expensive, no fees for Poland, and no temptation for criminal behavior. Now he is dead too, felled by his own arrogance in flying into Katyn. One of the rare cases the Germans didn’t get blamed : – )

b) Cameron tried to abuse his veto rights to blackmail the rest over the fiscal pact in December 2011. The Fiscal pact got done in bilateral fashion, without UK having any say. After the Libor scandal and similar, nobody will trust UK fiscal “supervision” ever again. Italy and France are now challenging their rebate.

Every time some folks think they can get away with that kind of behavior, it backfires. And the more folks repeat this behavior, the more they destroy any good will left for them.

@ G
I change my mind that you are typical of Germans. You are clearly on an ‘extremist’ planet. What you completely miss of course is that debtor /creditor is a two way relationship, that doesn’t work in the extreme for either side. While therefore a creditor can also be determined, you creditor ‘slavery’ approach is a few hundred years out of date.

“someone from a country which has an indelible racist stain on its escutcheon”
I too find this deeply offensive.

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