Posted by: Dirk | January 5, 2011

Spot the OCA (Optimum Currency Area)

Exhibit A.:

Exhibit B.:

I have taken both graphs from Paul Krugman’s website, quick&dirty pasting at its best. Add to this yesterday’s news that the inflation rate in the euro area has reached 2.2% in December 2010 and you know that this year will be, well, interesting.

The ECB is between a rock and a hard place. Let inflation go, and accept a higher price level in the core (Germany, etc.) or rein it in and risk more deflation, financial troubles and depression in the periphery. We (Europeans) are living in post-asymmetric shock times.

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