Why the Fed should not prevent a US recession

By: Paul de Grauwe, K. U. Leuven

The US needs a higher savings rate. There is no way around it.

Is US inflation at 8%?

By: Wolfgang Münchau

Some estimates suggest that we are consistently underestimating the rate of US inflation. While I am largely agnostic on this particular issue, I strongly believe that we need a debate about how we measure prices. (Note to readers: The guestbook entries are working again.)

The euro area is tipping into stagflation

A strong fall in the PMI suggests that the private sector in the euro area is on the verge of contraction; Ireland is to face its first recession since 1983; in Germany, wages continue to lag behind inflation, unlike in the UK where there is evidence of cost-push inflation; Jacques Delors and Joschka Fischer call for a avantguarde Europe; Spain defeats Italy for the second time this weak: Eurostat says Spain has widened its lead over Italy in terms of output per person.

Oil production is shrinking, despite Saudi Arabia’s increase

Bad news from Jeddah: there will be no producer-led bailout; Mariano Rajoy wins a classic power battle to remain leader of Spain’s Popular Party; Italian trade unions are getting nervous about inflation; there is consternation, meanwhile, in many parts of the EU about Sarkozy’s and Merkel’s threat to stop enlargement

Sarkozy and Merkel rule out enlargement without Lisbon

Talking softly, but acting tough: France and Germany says no enlargement is possible with Nice, not even to Croatia; Irish referendum effectively rules out a Danish referendum on the euro; Irish play down prospects of a deal in October; Lorenzo Bini Smaghi says services liberalisation essential for ECB to achieve its inflation objective; in the UK, meanwhile, Mervyn King secured a big victory with the appointment of Charlie Bean as deputy governor.

A Robin Hood tax for Italy – Tremonti’s 3-year budget plan

Italy has a new economic plan – no revolution, but not a bad start either; Zapatero promises to go soft on labour market reforms; hedge fund manager warns crisis will get much worse; Greece issues a dollar-denominated government bond; in Berlin and Brussels, meanwhile, the debate about how handle the Irish question has reached new heights of intellectual confusion.

Signs of strong second round effects in Spain

Spanish wage costs rose by 5.3% in the first quarter; Poland and the Czech Republic will not be able to ratify the Lisbon Treaty in time; UK inflation is to rise to 4%; in France, meanwhile, strike actions against government reform plans had low turnout.