A Pyrrhic victory for the ECB

A PYRRHIC VICTORY FOR THE ECB

M&G's Richard Woolnough looks at the European Central Bank's approach to controlling inflation.

Pyrrhic victory is a term that is used when you win the battle but lose the war. In this case, the battle as defined by the ECB is maintaining price stability at or just below 2%. This battle - as happily stated by the President of the ECB, Jean-Claude Trichet, in a recent press conference - has been won in exemplary fashion, with average yearly inflation in the EMU being 1.97% over the first 12 years of the euro. However, what is the cost of achieving this target? The cost in the EMU is divergent economies. Diverging short-term interest rates are contributing to a further diver...