Europe’s Monetary Mistake

Unwelcome monetary conditions hold sway in the Euro Area, where the European Central Bank has allowed money supply growth to fall precipitously. This is causing unnecessary stress for European workers and businesses, generating slower than expected inflation and contributing to sluggish economic growth as well. Americans should be concerned, too, because economic weakness in Europe means less demand for our own exports. What we are now observing is a “natural experiment,” when a major policy blunder sends the economy careening off course and, in the process, inadvertently sheds light on the validity of an economic theory.