ECB's Contradictions

ChrisR — Wed, 19 Dec 2007 14:05:00 GMT

European Central Bank president Jean-Claude Trichet warned Wednesday that the euro area's inflation surge was likely to last longer than expected - a remark suggesting the bank will stick to its tough stance on interest rates even amid the subprime crisis.
Trichet repeated that the bank would even move to raise rates to ward off inflation if need be, saying the central bank would not hesitate "to do whatever necessary" to avoid second-round effects - code for a wage-price spiral - that would keep inflation high.

OK...sounds good so far.

The ECB shouldn't be distorting interest rates in the first place. There's no need for anyone to have a "tough" stance on interest rates. But, second best would be to slow down or stop printing money out of thin air.

However, in the very same article, we find out:

The ECB on Tuesday opened its credit tap wide, pumping a record €348.6 billion - the equivalent of more than half a trillion dollars - into money markets to keep banks from Finland to France flush with the cash they need to operate.

Pumping a record amount of credit does not equal a tough stance on interest rates.

Mises wrote in Human Action: "Action is the real thing. What counts is a man's total behavior, and not his talk about planned but not realized acts."

Love of Liberty : eu

ECB's Contradictions