LBS Professor Advises Caution on Eurozone Recovery Hype

Richard Portes CBE, Professor of Economics at London Business School and President of the Centre for Economic Policy Research, told Reuters TV: “Mr. [Mario] Draghi made it very clear that inflation expectations have lost their anchor. Inflation expectations are going down. They haven’t been firmly anchored for some time. Now, finally, this is being recognised. We are slipping towards deflation, and Japan’s lost decade and more is an example of just how dangerous that is.”

In a Financial Times column from August 20th which immediately preceded the ECB chief’s surprise remarks at Jackson Hole, Professor Portes warned: “There is no substitute for pragmatic, non-ideological policies that accept and confront the data – which tells us that current policies are failing…Repairing the credit system, implementing serious reforms of state expenditure and taxation, creating more flexible labour markets, finally opening the services market to cross-border competition – all are indeed very important. But they will not liberate the Eurozone from stagnation.”

In his address at Jackson Hole, Mr. Draghi certainly seemed to have heeded the warning. “Very significantly”, Professor Portes added in an August 26th Financial Times letter, “he argued for co-ordination of monetary and fiscal policies. He also endorsed the large EU-level public investment programme proposed by Jean-Claude Juncker, the incoming president of the European Commission.”


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