Third, one should not discount the Bundesbank's influence on ECB attitudes toward inflation. (It's against it.)
Today, the Financial Times reports:
Last week, two German members of the ECB’s 23-member governing council led a six-man revolt against Thursday’s move to cut the bank’s benchmark lending rate by 25 basis points. The cut was quickly followed by public broadsides from Germany’s influential conservative economist Hans-Werner Sinn and some mainstream financial media.
This, remember, is at a time when inflation across the euro area has fallen to 0.7% year-on-year (while outright deflation is a serious problem in several member states), and when the unemployment rate remains stuck at 12.2%. Germany does not want to give any ground. It doesn't want to write the periphery cheques. It doesn't want to backstop their finances. It doesn't want to run bigger fiscal deficits. It doesn't want to reduce its current-account surplus. And it doesn't want to accept even a little more inflation. One is tempted to conclude that it doesn't want to be a part of the euro area. But something has to break. Hopefully it will be Germany's resolve on monetary policy, rather than something more dangerous.