This is what the European Central Bank describes as its objective on the relevant EU site:

‘The primary objective of the ECB’s monetary policy is to maintain price stability’

However, since the ECB came into influential being at the outset of EMU (European Monetary Union) it has achieved anything but that. On the chart below – handily provided by the ECB itself – we can see that before the euro was born, price inflation drifted down nicely from a high of 5% inflation in 1992 to 0.8% as 1999 dawned. By then, of course, pretty much everyone knew a new currency was coming. And so almost everywhere – for example, in Spain, Italy and Greece, where the currency units were smallest – a bit of inflation jiggery-pokery went on in anticipation of nobody really noticing price increases…reaching a peak of 3% in 2002.

The credit-crunch shock in 2008 produced a short period of dramatic deflation, immediately after which inflation zoomed up again to reach the same peak at 3% last year. I’ve ringed the low and high points of this last period at the right-hand end of the graph below, because they record easily the steepest inflationary climb in the common currency’s brief history.

Apart from the fact that comparing prices before EMU to afterwards reveals a steady approach to near-zero inflation being replaced by a financial St Vitus Dance – well then, thank goodness for the euro – the graphic above reveals a meteoric rise from 0.5% deflation to 3% inflation since the debt crisis started.

None of this inflation is down to retailer profiteering and wage demands: the eurozone (especially the southern end of it) has seen real falls in income and retail turnover throughout the last period. What we have here is issuer inflation: money-printing by stealth. Money-supply has increased as a result of trying to protect banks – and increase the liquidity that banks themselves were too self-protective to provide.

Just another blogsite conspiracy assertion? Far from it. Go to the statistics on banknotes in circulation, and you will spot two undeniably bad signs:

1. The amount of euros in circulation rose by 2.4% in December 2011 alone. If that trend continues in 2012, the currency will have been devalued by 29% at the close of 2012.

2. By far the biggest rise was in medium-to-large denomination (50 euro notes) during that period. Both massive printing of small and high denomination notes would be instantly noticeable: the ECB has opted, as you’d expect, for the middle-rankers.

So: more money, and more bigger money – if you’ll pardon the bad grammar. This is what Berlin fears, and why – even if for the time being Draghi and Merkel are on the same side when it comes to giving the markets a good hard slap – the first German journalist worth his or her salt to get a handle on this is going to blow the whistle big-time in the Bundesrepublik.

Forget long-term trends: what’s happening now as the authorities panic is all that counts. Far too many sites declare ‘the money-printing has begun’. But these stats show beyond any shadow of a doubt that it is well under way.



  1. Isn’t it the case though, that if this were the Euro in isolation it would amount to an issue. But, because it is operating in a world alongside other currencies, most of which are doing the same, it isn’t the problem it would otherwise be.

    The pound for instance continues to make very little positive ground by comparison.


  2. Merkel is a politician, she doesn’t give a crap about inflation. She gives a crap about what people think. If they can print money and it doesn’t sound like printing money to her electorate, she won’t care even if there is inflation, as long as the finger is not pointed at her, as long as the mugs turn out to vote for her, that is all that matters.


  3. John, I believe the best thing to look at is Euro M3 growth (money inflation). I think I have an official chart back in the UK on the Master Computer which shows Euro M3 growth since its introduction…and it has been substantial year on year. Quite deliberately so.

    CPI data used in the EU/EZ and UK/US only captures about less than half of real consumer inflation. Quite deliberately so, and also that not all growth in the money supply feeds thru to consumer inflation for technical reasons.

    I know from personal experience that in the 2-3 years after the Euro was introduced, consumer prices not controlled by the Madrid Govt (restaurants, bars, hotels and all the stuff you buy in El Corte Ingles) went up very considerably, to the point that whereas I used to drive home from Spain with a bootload of cheap goodies, I stopped doing it because there were no bargains. Prices were no cheaper than London. And what my analysis revealed in Spain is that although the official Peseta to Euro conversion rate was 166, many Spanish retailers converted prices at roughly 100, thereby creating a 66% price increase. Thus, a chinese meal in Madrid that used to cost me 2,000 pesetas suddently cost €20. Same story in Seville where the price of tapas went thru the roof. A hotel I used to stay at on the Costa Blanca went up from ~€60 per night to €85 in one year.

    All this undermines the frequently claimed benefit of the EU cratocracy in the run-up to the Euro that it would drive prices down. Exactly the opposite happened.

    And of course all that consumer inflation has seriously damaged Spanish tourism.

    Greenspin was also pumping up M3 in the US since the late 90s.


  4. The idea was to equalise prices across the EZ, same in Berlin as Madrid, without regard to the costs of production, local factors.


  5. Of course, the ECB is printing money, more so since Draghi introduced the LTRO , which is its version of the TARP and all the other wonderful acronyms used by the US in 2008/9.

    But inflation is a neccesary if not sufficient condtion for overcoming the crisis. It was always going to be thus. The problem is they have done a lousy job of it so far! I expect they will pile on more and more (QE3 coming in Feb/March, more QE from the BOE) until they succeed and eventually succeed to well and then we have interest rates approaching double digits if not higher.

    One source indicated to me that the objective of the Fed was to double the price level over the 2009/20 period, an average compound rate of 7 per cent. They are well behind the curve at this point which would indictae much higher rates than that down the road if the average is to be achieved.


  6. Politicians lying and stealing from those who voted them into power! Well I never. :-|

    The time is getting seriously ripe for an assassination on at least one public figure. I’m amazed it hasn’t happened yet.

    And I’ve just finished writing Obama’s State of the Union speech:
    “The union’s in a right f*****g state!”

    Let me know what you think….


  7. My interpretation of the rise in the bank notes is that people are hoarding cash more these days as a hedge against a run on the banks. Especially since the interest paid on many accounts is laughable. I don’t see a strong correlation with inflation there. Our economoy does not rely on hard currency the way it used to so the role of the literal printing presses is not as significant as in, say, the Weimar republic. We’ve gone from 600 billion to 900 billion euros worth of bank notes in a five year period. What’s the total eurozone economy worth these days?

    What is interesting is the leap that took place between September and December in 2008. See here:

    And click on ‘value’ to see the value of the notes in circulation, including a grand total. In those three months the total supply leapt from 680 to 760 billions. What you note in December could be another of the blips we have seen EVERY December of every of the last five years. Was it only my aunties who gave me a fiver for xmas when I was a nipper if they couldn’t think what to get me?

    Nothing to see here. What would be interesting is whether the total cash in circulation can maintain a few months of growth, since that would perhaps indicate that the man on the street is getting twitchy. But would he want to hold euros?


  8. All my French pals tell me a similar story re the Franc. The official inflation figures are to an extent suspect. Especially the essentials like food and taxes. When I lived in the Uk I had the same experience – inflation is really running at 5% to 10% pa on the things we actually need – IMHO.


  9. My Fellow Amuricans:

    It’s tough out there. I know that. Some people say that Amurica is becoimg a Third World economy. I wish I could confirm that. We could be headed for the Fourth World if my brain dead Republican opponents get elected in November. But I, the first Third World president of the Excited States of Amurica, pledge to use my contacts to reestablish Amurica as the true leader of the Third World.

    You can depend on that!
    Allah Akbar and Good night my ffello Amuricans.


  10. CPI data used in the EU/EZ and UK/US only captures about less than half of real consumer inflation. Quite deliberately so, and also that not all growth in the money supply feeds thru to consumer inflation for technical reasons…. Oh, how true BT….how true.


  11. Again, said it a while back, Draghi was printing and, I suspect Merkel gave it her full blessing.
    What seems to be the issue here is: not the printing of money, but printing of the fact that money is being printed, had they, under different circumstances been able to conceal it, things would have been different.


  12. You are correct about M3…. Except presently the figures for Italy (for example) show that M3 is collapsing. Right now they are not wrong to print money.


  13. Printing hidden in Draghi’s longer-term refinancing operations… hey, it saved Italy, and I ain’t implying that because he’s Italian, that this is happening, or that that Weber was blackballed for protesting against the bailouts, and therefore not given the top seat that would surely have seen Italy push for a bailout, as oppossed to backdoor refinacing with the LTROs


  14. I just cannot believe the veracity of this post and the associated comments. I personally saw Trichet on TV in one of his numerous farewell interviews clearly stating that ‘The ECB (under my control) has delivered price stabilty IMPECCABLY……IMPECCABLY!!!!
    Are you bloke collectively saying that the honorable Trichet is telling ‘porky pies’????

    What a cynical bunch you are…and how right you are!


  15. Banknotes are a small component of the money supply and have little influence on inflation.Bank deposits are what matters.


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