Greece: Krugman slams Greece, Germany slams Krugman - by Matt Clinch

Renowned economist, and a fervent critic of austerity, Paul Krugman has slammed the Greek government for accepting harsh tax and reform measures. On the very same weekend, German Finance Minister, Wolfgang Schaeuble, openly questioned the Nobel Prize-winner's knowledge of Europe's monetary union.

Krugman had been calling for Greece's government to reject the proposals that creditors have demanded in exchange for unlocking much-needed cash. He had dubbed the demands as "madness" and a "complete destruction of national sovereignty."

With the reforms having been given the green light, Krugman told CNN Sunday that he may have "overestimated the competence of the Greek government."

"(The Greek government) thought they could simply demand better terms without having any backup plan," he told the news channel in an interview. "So, certainly this is a shock."

The radical-left Syriza Party was elected this year with a mandate to reject tough austerity measures from creditors but last week agreed to a deal despite Prime Minister Alexis Tsipras stating that he did not believe in it. Tsipras has since tried to weather a storm within his own party and experts suggest that another election could come later this year.

Krugman - a noted Keynesian - has been a very vocal critic of the austerity that has been placed on Greece from euro zone lawmakers, which include those in Berlin. Schaeuble used an opportunity to respond to Krugman when asked about the economist in an interview with German newspaper Der Spiegel.

"Krugman is a prominent economist who won a Nobel Prize for his trade theory," he said in an interview on Saturday.

"But he has no idea about the architecture and foundation of the European currency union. In contrast to the United States, there is no central government in Europe and all 19 members of the euro zone must come to an agreement. It appears Mr. Krugman is unaware of that."

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EU Economy: Europe fears deflation as Ukraine stays centre-stage

The eurozone's growing fears of deflation will be stirred again on Friday when preliminary consumer price data for August will be issued with signs that the European Central Bank (ECB) could be looking at bolder steps to help the region's stagnant economy.

Analyst polled by Reuters forecast the annual inflation rate to slip to 0.3 per cent from 0.4 per cent in July, falling even further below the ECB's target of below but close to two per cent and mired deep in what the bank calls the "danger zone." The ECB cut interest rates in June and promised banks cheap long-term loans starting in September and any new measures before those loans kick in had been considered unlikely.

However, in remarks that opened the door to possible policy action at the bank's next meeting in September, ECB President Mario Draghi said on Friday that the bank is prepared to respond with all its "available" tools should inflation drop further.

Speaking at a global central banking conference in Jackson Hole, Wyoming, Draghi said he is confident that the steps already announced, helped by a weaker euro would boost demand in the ailing economic bloc. But in stronger language than he has used in the past, he stressed the central bank stands ready to do more. "The (ECB's) governing council will acknowledge these (economic) developments and within its mandate will use all the available instruments needed to ensure price stability over the medium term," he said.

The main weapon at the bank's disposal, printing money to buy bonds, known as Quantitative Easing (QE), is still opposed by Germany's Bundes bank which plays down the danger of deflation. In his remarks on Friday, Draghi did not mention the policy specifically, but a growing number of analysts believe it is only a matter of time before the ECB follows the path already trodden by the Federal Reserve and the Bank of England.

"The ECB will ultimately move to QE unless the euro weakens appreciably," said Riccardo Barbieri, chief European economist at Mizuho, adding that, "In the near term stagnation and near-zero inflation in the eurozone are almost a certainty. Developments in Ukraine will continue to be a major focus for markets, with the negative headlines of recent weeks having pushed German bond yields to new lows."

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EU-Economy: Quantitative easing: ECB getting closer to US Fed-style stimulus ( Lets hope not) - by David McHugh

The European Central Bank has deployed a raft of aggressive measures to boost Europe's economy, but stopped short of the one many economists insist would do the most to help: large-scale purchases of bonds.

That could change sooner rather than later, analysts say, if inflation remains low.

Purchases of bonds using newly created money — called quantitative easing — have been used with some success so far by the U.S. Federal Reserve, the Bank of England and the Bank of Japan. They can reduce market interest rates, making it cheaper for consumers and businesses to borrow, helping growth.

So why not in Europe?

To begin with, the ECB faces technical and practical challenges that other major central banks don't have. It has 18 different government bond markets, raising the question of whose bonds to buy and how many.

Beyond that, creating new money has long faced resistance in Germany, the biggest economy in Europe where central bank stimulus measures are looked upon with suspicion and have a prominent place in public discussions.

But after Thursday's meeting, things could be shifting.

At a press conference on Thursday, ECB President Mario Draghi held the door open to such bond purchases, suggesting Germany has at least softened its outright resistance. If inflation falls further, analysts think the ECB could start quantitative easing.

"Are we finished?" he said after the decision. "The answer is no." The ECB is keen to bring up the inflation rate, which at 0.5 percent is so low it raises fears the eurozone will fall into outright deflation, a crippling downward price spiral.

Note EU-Digest:  quantitative easing is the kiss of death for an economy and even though it creates some relief at first it will eventually come and haunt you, as the US is experiencing, but not speaking about. 

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