Is the ECB interest policy wrong?

I essentially am not the one to be the wiser on this one but I have argued recently that the ECB latest tightening was based on a premature expectation of a sustained European recovery. New Economist has a very thouhtful post on the latest ECB policy decisions and the Eurozone in general, and if you really want to understand the ECB's issues, you should read along.

First off, New Economist points us to the latest column from Bloomberg's Matthew Lynn (see New Economist's post for a more lenghty abstract).

'Inflation is clearly above the ECB's limit of 2 percent, so rates need to be raised to bring prices under control. Argument closed, right?

Well, hold on. Maybe the consensus needs to be questioned. There are four reasons for doubting it.'

So this is all well and good I guess but it gets better folks because what it really comes down to is the economics of the Eurozone itself, not so much the ECB's interest rate decisions per se. Now, as also mentioned by NewEconomist the notion of an inflation target is inherently difficult to speak about. The point is that the target might very well need tweaking but in the end this is not what it is all about, which brings us to the quote of the week or possibly the month.

(New Economist)

'But the biggest challenge is not about tweaking the inflation target. It is how a single interest rate can possibly accomodate the very wide dispersion in growth and inflation across Eurozone economies, particularly when there is litle sign of growth or inflation converging across the zone, as had been expected.'

That is about it I should say and anyone with just a little grasp of economics should at least be ready to reflect on this and if not they are equally as blind as those claiming that the emperor was still wearing his clothes.