What Will Europes Central Banks Do?
European economies are entering a period of heightened uncertainty: On the one hand, soaring prices for oil and other commodities have just begun to translate into higher headline inflation, and further consumer price index, or CPI, acceleration is expected in the coming six months. On the other hand, the new heights reached by the euro and the British pound sterling exchange rates against the U.S. dollar bring further evidence that Europe is going to be most affected by the U.S. slowdown and the rebalancing of the U.S. trade deficit, Asian currencies (aside from the yen) having hardly moved against the dollar in the meantime. In addition, the dislocation in credit markets will be felt for quite some time. The most recent survey on lending practices in the Eurozone, published by the European Central Bank (ECB) in October, reveals an abrupt tightening in lending criteria, consistent with a marked deceleration in lending to corporations and households. The conflicting risks of higher inf
