Nominal growth should in 2009 to be about 1 at best

At its meeting tomorrow, the European Central Bank (ECB) should reduce interest rates by 100 basis points and declare itself ready to further monetary easing. European Central bankers have all cards in hand to do so.

There is first the economic situation. The European economy is in a recession, which, in various aspects, is already far more serious than that of the years 1992-1993, and it is facing a serious risk of deflation, i.e. concomitant decline in activity, demand, prices and richness.

Then there is the financial crisis. It has become a platitude to say that this crisis is unprecedented and it claims so answers out of the box. The economy needs low interest rates, banks of steep rate curves (long-term rates exceed short-term rates). This is the minimum to wish to overcome credit rationing. It is obviously not to repeat the mistakes of the past as a able recently to express fear Angela Merkel, German Chancellor but to cushion their impact on the real economy today. Lowering rates in a radical way and widen fiscal deficits are emergency measures, which must not call into question the principles of good management in the long term. When the economy will be stabilized, it should be up interest rates and serve the deficits in a determined and credible manner.

Finally, there is the example given by the "brotherhood" of other central bankers, as Jean-Claude Trichet, President of the ECB, often likes to describe his colleagues around the world. The ECB cannot ignore that English and Swiss central banks whose economies face exactly the same shocks than those of the euro zone, have recently dropped their interest rates in a brutal way.

We could add, but it would be treacherous, the ECB has taken much of the delay in the setting of monetary policy, first, last spring, by making a grave error of diagnosis on the reality of the inflation risk, then toughening its policy in July. The ECB has begun to correct shooting taking part in the decline of interest rates on 8 October coordinated globally, and then extending this movement a few weeks later. But at its current level of 3.25 rates of the ECB is still not adapted to the economic prospects of the euro area. Nominal growth should, in 2009, to be about 1 at best. Europe will never known as low sales, or during the 30 Glorieuses (sharp increase in volumes), or during the 1970s (with rising prices), or since (in 1993, it had fallen to 1.3).

The business plan, all published statistics recently justify decisive and quick ECB action. Note in particular the collapse of all confidence indicators; braking of the credit; the rise of the unemployment rate; and the division by two of the rate of inflation since the summer. The euro-zone inflation has almost returned to the ECB target and below will evolve in the coming months.

We already know why progresses the ECB if elle chooses not to lower rates "and" 50 basis points, as waits it for the consensus. It will put forward that it has not wished to surprise the market not to fear a hidden risk. It may also forward it lack of hindsight to determine if the real economy has not sur-réagi to financial shocks. Perhaps she will go to say that she does not wish to use all its ammunition at once, because who knows what tomorrow will be made! These reasons do not withstand review. The press conference by the President of the ECB is precisely to explain the decisions of the Governing Council, even if these decisions are a surprise. Moreover, the ECB prides itself to have a forward-looking monetary policy strategy: it is therefore the time to act as leading indicators plummet. Finally, concerning the gradualism of the shares, it may dilute the effects of stimulus. The crisis of the magnitude that we know, it is a cure of horse that must be administered and non-homeopathic granules. In fact, the only risk that the ECB would take to ease its monetary policy in a brutal way, would be to create a positive effect on the general feeling and to receive the approval of a political staff, accustomed although wrongly to criticize its lack of flexibility. It is a risk that is happy for her!