Edward Hugh is wondering whether ECB President Trichet is even paying attention to what is going on with the euro.

So this is the point. We are soon going to be into declining rates at the ECB, and then what is going to happen to euro/dollar. I ask you? Are the markets ready for this?

Even ECB-adviser and hawk Joaquim Fels now has the current ECB rate as neutral, and of course, if the fundamentals are deteriorating, neutral quickly becomes �overtight�. No wonder Trichet is hard to find at the moment.

And yet at Eurozone Watch we see the EURIBOR rate has taken off. That may account for short-term euro/dollar appreciation as much or more than anything else. The ECB has no mandate for anything other than price stability, and how it defines that is its own decision.

As to Edward Hugh's comment, I point out Stephen Kirchner's comment that "fixed exchange rates wrecked havoc by transmitting economic shocks, including monetary and fiscal policy mistakes." If the US and Europe have had different reactions to the shock of the subprime mortgage meltdown, what would you prefer to adjust if not the exchange rate?

"Yes, King, but have they?" Damn good question to which I don't have a good answer. It's not as if the euro/dollar appreciation is anomalous from the US' point of view.

Labels: economics