Sinking euro: The ECB’s approach to fighting inflation is messy and modest compared with the Fed’s
Dear Canadians, forget that holiday in Muskoka or Banff or Cape Breton. Come to Europe instead. The euro is selling off, creating sweet bargains for travellers. In recent days, it hit parity with the U.S. dollar, dealing a psychological blow to the guardians of the currency.
The euro is not in crisis – far from it. The crisis happened a decade ago, when Greece was on the verge of bolting from the euro zone and Mario Draghi – then ECB president, now Prime Minister of Italy – said he would do “whatever it takes” to keep the euro zone from burning. His firefighting effort worked.
The question is where that floor is, and it may not be at or just below parity. That’s because the ECB and the Fed are diverging. The Fed appears to be engaged in the single-minded pursuit of busting inflation. The latest U.S. reading had inflation running at 9.1 per cent as housing, gasoline and food costs galloped ahead.
There are a lot of voices vying for space in the ECB’s head, and not all of them are obsessed with crunching inflation. Fear of recession and an Italian blow-up, in other words, probably will prevent the ECB from hiking as forcefully as the Fed, which in turn suggests the EU economy is weaker than America’s; it probably is, since the United States, a net energy exporter, is somewhat more insulated from high energy costs than Europe, a net energy importer.
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