Eurozone Whacked by Runaway Inflation, “Fragmentation” Fears after Years of Negative Interest Rates and Reckless QE

Raging inflation started mid-2021, but the ECB called it temporary. In June, it ranged from 6% to 22%!

By Wolf Richter for WOLF STREET.

Inflation in the Eurozone spiked to a new record in June, according to preliminary data released today by Eurostat. The overall rate of CPI accelerated to 8.6% in June, from 8.1% in May, and from 7.4% in April. All of them were records in the Eurozone data going back to 1997.

Inflation started spiking in August 2021, when it hit 3.0% for the Eurozone, well above the ECB’s target of 2%, but the ECB, aping the Fed, called it temporary. By December 2021, overall Eurozone inflation hit 5.0%, with two Baltic countries already in the double-digits.

It happened suddenly after years of radical money printing and negative interest rate policies, when overstimulated demand for goods was followed by supply chain issues to produce these goods, and this explosion in demand for goods happened globally, but particularly in the US, creating all kinds of supply chain chaos and price pressures, all of which triggered a broad set of behavioral changes among businesses and consumers where price increases were suddenly tolerated, and higher costs were successfully passed on, and became entrenched as the inflationary mindset had taken over.

And the ECB President Christine Lagarde brushed all of it off for way too long – though they’re now too finally taking it seriously.

Energy costs have been surging all last year, and in early 2022, additional spikes in energy commodities occurred as Russia invaded Ukraine, and as the European Union, the US, and other countries imposed sanctions on Russia. The war in Ukraine also tore up supply chains of agricultural commodities globally and of manufactures goods for European manufacturers.

But many commodity prices have now been falling for a while, and the price spike of crude oil has stalled for now, and the crazy spike in European natural gas prices that occurred in March has been partially unwound.

And yet inflation continues to surge as price increases have spread across the economy.

Bundesbank president Weidmann quit in disgust.

In September 2021, inflation in Germany hit 4.1%, the highest since the existence of the Eurozone data. In November 2021, inflation in Germany hit 6.0%.

Having seen this coming, and having warned about surging inflation for months, while being ignored by Lagarde, then-Bundesbank president Jens Weidmann, one of the few inflation hawks left on the ECB, asked German President Steinmeier to dismiss him from office effective December 31, 2021 for “personal reasons.” Everyone knew why he did: Disgust with the ECB’s monetary policies.

In his official statement at the time, Weidmann made a few gentle and vague references to his misgivings about the ECB’s dealings with inflation, such as when he said that it will be “crucial” to not look “one-sidedly at deflationary risks” but to also look at “prospective inflationary dangers.” And inflation spiked to 8.7% in Germany by May 2022.

In June, according to preliminary data based on the harmonized EU inflation measure released today, inflation in Germany dipped to 8.2%.

But this dip was largely due to the government’s actions to help take the bite out of this raging inflation, such as cutting fuel taxes and offering as of June 1 a €9-per-month pass as part of the Energy Cost Relief Packaged that allowed people unlimited travel on buses, trams, and rail systems across the country, which in travel season is a huge savings, on top of the commuting cost reductions. And so CPI dipped a little in June.

From least terrible to most horrible inflation.

The nightmare for the ECB is not only the magnitude of inflation but also the range of the CPI rate by country, with 9 of the 19 Eurozone countries experiencing double-digit inflation rates from 10.3% in Luxembourg to 22% in Estonia. The country with the least terrible inflation rate was Malta, at 6.1%.

These are massive scary inflation rates in the 19 Eurozone countries:

Estonia 22.0%
Lithuania 20.5%
Latvia 19.0%
Slovakia 12.5%
Greece 12.0%
Slovenia 10.8%
Belgium 10.5%
Luxembourg 10.3%
Spain 10.0%
Netherlands 9.9%
Ireland 9.6%
Cyprus 9.1%
Portugal 9.0%
Austria 8.7%
Italy 8.5%
Germany 8.2%
Finland 8.1%
France 6.5%
Malta 6.1%

The risk of “fragmentation.”

In its response to this raging inflation, the ECB has now ended QE and signaled that it will finally raise interest rates in July, with possibly a bigger rate hike in September, and that the negative interest rates will turn into positive rates this year. Which would mark the end of the utterly absurd and destructive experiment of negative interest rates.

This is ridiculously too little, too late. A huge amount of damage has already been done by this raging inflation. But just the threat of ending QE and hiking rates has caused government bond yields to surge – and to diverge.

A year ago, the German 10-year yield was -0.2%, while the Italian 10-year yield was +0.8%, and the spread between them was about 1.0 percentage points.

By mid-June, the German 10-year yield hit +1.75%, and the Italian 10-year yield spiked to 4.17%, and the spread between them more than doubled to 2.4 percentage points. This was when “fragmentation” talk hit the front pages.

This resurging divergence in bond yields, as the bond market grapples with the first signs of being somewhat less manipulated by the ECB, is scaring the bejesus out of some folks at the ECB, in Italy (including “whatever it takes” former ECB head Draghi who’s now Prime Minister of Italy), in Greece, and in other fiscally challenged countries.

The resurging divergence in bond yields is scary stuff to the ECB that is now fearing “fragmentation” of the Eurozone. The ECB’s number one goal is not to keep inflation down, but to keep the Eurozone together.

So now it has come up with a new scheme where it will further and even more selectively interfere in the bond markets to prevent price discovery from taking place, whereby it will let German and other bonds roll off its balance sheet when they mature, but if yield spreads between Germany and countries like Italy widen beyond a red line, it will buy those countries’ bonds. In other words, it ends QE overall, but conducts QT for Germany and QE for Italy, or whatever.

Upon just these discussions and announcements – nothing actually has happened yet – the spread between Italian and German 10-year yields narrowed to 1.86 percentage points today. And inflation rages hotter than ever before in the Eurozone.

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  135 comments for “Eurozone Whacked by Runaway Inflation, “Fragmentation” Fears after Years of Negative Interest Rates and Reckless QE

  1. Finster says:

    I guess if you’re the ECB, you may have fragmentation fears. Others might have fragmentation hopes.

    To be sure, the EU benefits the European elite. Whether it benefits the average citizen is not so clear. I think the Brits had it right.

    • Escierto says:

      Let’s be clear about this. Not the Brits. The English. Scotland, Wales and Northern Ireland all voted to remain and one day the English will regret this. Alba gu brath!

      • Edward says:

        Time will tell, Scotland, Wales and NI all suck off the English tax payer and have falling populations, except Wales.

        The single market is a good idea, the political construct an abomination and the Euro doomed.

        Better to be in a life raft than dancing in the ballroom of the Titanic.

        • Escierto says:

          So typical. Then the English wonder why they are hated.

          Scotland’s population:
          2001 5,062,011
          2011 5,295,400
          2019 5,463,300

        • 2banana says:

          It’s kinda funny about Scotland.

          They want to break away from England…Independence!!

          The Shetland Islands (and all that oil) then wants to break away from Scotland…how dare you!

        • Sams says:

          Well, there is an old agrement that if Scotland part with England, Shetland should again be Norwegian! :)

          Something with an ancient wedding gift between some royalties.

      • Edward says:

        In fact, the EU is rapidly becoming an irrelevance. The demographics are a disaster. Percentage of world population falling and exports about to take a hit as German mercantilism stalls and along with it the engine of Europe.

        Watch out below.

        • ChrisR says:

          German inflation higher than French inflation. Gotta laugh at that one, eh Fritz?

      • 2banana says:

        Germany is sold out of wood stoves and firewood through spring 2023.

        You will freeze hungry in the dark to support your unelected EU masters.

        • Lairtin Dubs says:

          And our English masters won’t let this happen in the U.K.
          Oh by the way Shetland would be classed as an enclave under international law with a 3 mile limit
          So you can forget about that stick to use against the Scots

        • tindrum says:

          you mean unelected US masters I think. All of this shit is down to the lunatic neocons in Washington.
          Inflation has nothing to do with the ECB – Jens Weidmann has been predicting massive inflation since 2008 and the ECB has been printing trillions since 2008 with zero inlfation – massive corperate profits are a big cause (DAX profits up 150% in 2022) along with COVID and the “special operation” in Ukraine.

      • rojogrande says:

        That’s incorrect. Wales voted to leave by nearly the same percentage as the English. They voted to leave 52.5% to 47.5%, in England it was 53.4% to 46.6%.

      • Helmut says:

        That serves you right, you look what you missed.No jealousy, please :)

        • NBay says:

          I can’t figure out what your point is, but regardless, if a mortal sin WAS committed here, there is a big price to be paid for those….. FWIW.

    • phleep says:

      Everyone still has one eye on the rear-view mirror and a few little bouts of Euro fragmentation, a.k.a, the world wars.

      Maybe Germany has some buyer’s remorse though, for, like the dog that finally chased and caught the car, it might not be sure what to do with European hegemony. Hegemony is expensive! Especially so, in a world of aspirations of bloated indebted consumerism.

      So maybe Xi can aspire to woo away some EU nations’ affections, and take over some payments and headaches, and (as his ministers elsewhere learn to buy off the Taliban and such other odd bedfellows), he can figure out how to deal with the Camorra in the port of Naples.

      • Helmut says:

        I believe everything my Politicians and Bankers tell me…That is how i got my Ph.D. in life.
        PHD : Poor, Helpless, and Desperate.

      • intosh says:

        The US also struck a deal with the Taliban with the aim to ease its military retreat in that country.

    • Augustus Frost says:

      The UK absolutely did the right thing. If Scottland, Wales and NI want to join back, let them do it.

      There is no need to have a political bureaucracy to obtain the supposed benefits of the EU.

      The goal of the EU is to create a European superstate, where the elites plan to run it with even less accountability to the voters than existing national governments.

    • intosh says:

      Hope there will be more suffering on the horizon. Then, maybe the average ctizens will swamp the buildings with pitchforks and drag some of these irresponsible incompetent leaders/elites out to the street for judgement.

    • Djreef says:

      MMT works great!

      • Old school says:

        Yep. I think when government gets to be 40% plus of the economy,you have to have an active central bank to keep kicking the can and devising more absurd definitions of money. Gold backed to sort of gold backed to backed by real interest paying capability of government to you pay us to keep your money in the bank to if we don’t like you we will take your money.

      • eg says:

        Not sure what your post intends, but the MMT analysis is that the Euro is on borrowed time.

    • c_heale says:

      Unfortunately England is turning into a neofeudal society. The UK’s (basically England’s) govermment is probably worse than the undemocratic EU. They’re both going down after centuries of exploiting other countries.

  2. Michael Engel says:

    1) In Germany, in the last 25 years, the average inflation was 1.5%.
    Madam ECB deposit rate of (-) 0.50 keep the zombie countries and banks alive.
    2) After Madrid summit the German inflation might decline to 5%-6%.
    3) If Germany wave a white flag, during winter 2022/ 23 inflation will
    stay in a trading range. If not, inflation might spike to 13%-16%. It is consider moderate, far below hyperinflation range, but far above the last 25 years range.
    4) We don’t know what Germany do next. There is a risk that US best of the best friends might turn their back on us, crashing at the top.

    • MiTurn says:

      Current policies will undoubtably bring about a rethink of the benefits of individual state membership in the EU. I’m sure some in Germany are pining away for the return of the Deutsche mark.

      But can you imagine Italy with its lira?

      • wakarimasen says:

        During DM times I was often on Lago de Como (Italy) on the weekends. The price of a Cappuccino was 2000 Lira (2 DM). A couple of years later the price of the same Cappuccino in the same restaurant was 6 EUR (12 DM). Now the wealth of the median Italian is 3 times higher than the wealth of a median German. But 20 years ago Italy had a much stronger industry than now.
        I am German and I just can say : “I love the EU” . Great project, great leaders. Everything turned out as promised more than 20 years ago.
        The EU is really a performance oriented union.
        The big german industrial families need the EU. They want sell BMWs in Italy too. Just the german people get scr…d a bit. But this has tradition in this country.

        • NBay says:

          Thanks for inside input. I too hope the EU effort works out. 1500 or so years of nearly constant war is one BIG incentive. I also envy Parliamentary governments. Having only two political parties with only two “platforms” really sucks. Our “founding fathers” (except for Paine who was run out of here after he was no longer needed; e.g., giving the people something worth fighting and dying for that they were NEVER gonna get) can all go pound sand.
          We haven’t “grown up” here yet.

        • NBay says:

          Even if that’s sarc that I missed, my reply still stands as is.

        • James Charles says:

          “ . . . right now it’s Germany’s
          71:25 turn because the ECB is now creating and
          71:27 property bubble in Germany has been
          71:29 since 2009 while it’s killing the
          71:33 community banks the good banks they’re
          71:35 all forced now to lend for property
          71:37 speculation so check me out in five
          71:39 years time the property bubble will
          71:42 burst and the tired German banking
          71:44 system will be bust and the ECB will be
          71:47 responsible . . . “
          “Germany’s amazing house price boom continues unabated
          LALAINE C. DELMENDO | May 18, 2021
          Despite the global pandemic, Germany’s long-running house price boom continues strong, thanks to low interest rates, weak construction supply, as well as the increased demand from more than 1 million refugees. In a country where the housing market has historically been extraordinarily stable, this is a significant shift.”

        • rick m says:

          Went to Garda to windsurf during DM and lira times. It was a hub for German tourists and a real money trap, but it was still cheaper than Germany and had much better wind than Starnberg for windsurfing. Just as cold water though. Italy is rigged to ensure some sort of mediocre longevity. Everybody just seems to accept a flexibility in standards there that wouldn’t fly on the other side of the Brenner Pass. It’s a stunningly beautiful place with attractive, interesting people. Great skiing and there’s no better place on earth to eat. But to my way of thinking, Italy is unsuited for membership in any European group that has any deeper involvement in common business practices than a customs union. They’re not Northern Europeans. Holding the Gumby and Pokey group (PIGS) to inflexible standards they’re unaccustomed to is cruel and will hasten their collapse and drag down some heavyweight money. Hard currencies hurt tourism, and Italy was a tourist destination in the Middle Ages. Fodor’s Europe on $5 a day book was actually true in some areas of Italy in the sixties. Go into the back areas off the tourist paths and it’s clear that most people have figured out a way to get by, but they aren’t rich or getting rich and wouldn’t tell Rome or Brussels if they were. An affluent German is much less reticent about it. It’s hard to imagine Schwarzarbeit (off the books work)) in Italy as it exists in Germany and Sweden. Italy has borrowed a lot from French banks, who in turn covered their loans by reinsuring in Germany.
          A relatively minor event has triggered much larger calamities in recent history, when there’s plenty of stored potential, as there seems to be now.

        • Denise says:

          Question.. We travel to Europe a lot in the winter (late November early December) and have family in Milan. The Italians seem to keep their homes warmer in the winter 23-24 than we do in the US. 18-20 during the day a little cooler at night. Is this the case for Germany? No one seems to wear a sweater. A little more layering at home could help ease winter natural gas shortages. Just wondering!

        • Craig says:

          lots of nonsense about the E.U. from the clueless.
          moved to france 20 years ago from san francisco and cannot
          say enough good things about the E.U relative to the U.S.

        • NBay says:

          Sure agree with “nonsense from the clueless”, but I’m maybe 2 mi from where Luther Burbank’s house, and totally agree with him about this whole area that I spent most of my life in. I was very lucky, and still am.

      • Helmut says:

        The Lira, because of its size made good toilet paper. It was also less expensive.

    • Whatsthepoint says:

      You must be slow on the uptake…..clearly US/Anglo policy is to destroy Germany once and for all….third time’s a charm…

  3. MiTurn says:

    “In its response to this raging inflation, the ECB has now ended QE and signaled that it will finally raise interest rates in July…”

    Figuring out economics is hard! And having a herd of PhDs running things doesn’t seem to work.

  4. dearieme says:

    Germany should leave the Eurozone. Do doubt the Dutch and Austrians would too, leaving France to lead the parade of wounded and injured.

    • Augustus Frost says:

      My prediction is the “core” will eventually federate. The “periphery” will leave or be left out.

      There are only two possible outcomes, eventual federation or a break-up.

      It’s obvious the elites prefer the former. I’m confident the public doesn’t want the latter, except when they think it’s free or they are on the receiving end of the subsidies.

      • Augustus Frost says:

        Make that the public wants the latter, except when believing it has no cost or they are subsidized. The majority aren’t willing to sacrifice their living standards for bogus kinship.

        • AK says:

          Very true.

          I would like to add that it matter less and less by the day what European elites and various European publics wish – reality is pressing harder and harder on EU. First COVID, then inflation, now war… Trying times cause people to retreat to things they cherish the most, and that is family, G*d and nation.

        • NBay says:

          In trying times many also decide to retreat to meth and opiates, etc. They are quite popular in the midwest and a bit south of there, where my family came from.

      • Sams says:

        Will the EU or USA break up first?
        Place your bets. Both have fault lines that can crack. Or if the USA do not break up, what come after the republic can be ugly.

        • NBay says:

          Why don’t you just say it?

          Oligarchy sponsored dictatorships. AK is all for it right now, it seems.

        • Francis Lunenschloss says:

          We live in the best country in the history of the world. The far Right and far Left should study some history. God bless America.

  5. Marc says:

    Currently the IMF, UN and FED policies continue to ravages, dissimates, starves countless beings, cultures and lands. Don’t worry inflation is just a minor inconvinience for the Civilized West but life and death to the others of over 2 billion this year alone.

    • MiTurn says:

      Sobering and important point. If I remember correctly, Americans spend about 10% of their net income on food. In much of the Third World it’s closer to 50%.

      • NBay says:

        World’s pigs. Have gone from ugly American to Great Satan in a pretty short time, yes?

    • historicus says:

      Central Bankers are central planners. And when central planners decide they intentionally assist one group at the expense of another.
      It is easy to see who benefited and who was harmed, intentionally, by central bankers.

  6. Greg says:

    Banana-Republic Christine has stated that y’all need to get used to inflation. Can’t hike rates to really combat hot inflation or the PIGS collapse taking the rest of europe into a depression. Like Japan they will suffer the double whammy of inflation and a currency crisis. Banana-Republic Christine must be on the blower to Banana-Republic Jerome for him to cut rates so the euro can strengthen, mitigating some of the red hot inflation!

    • NBay says:

      We almost got our Banana Republic in 2020, maybe you will be lucky soon?

      • Greg says:

        Bojo and Biden, Stolz and all the West leaders are stating the obvious “get used to inflation” or the proletariat are getting thrown under the bus while pointing the finger at everything scape-goat for their failings Russia, Russia Russia!

        • AK says:

          Will “proletariat” accept the “get used to inflation” suggestion from the ruling class, or will they start striking at places like power stations and water treatment plants, and suggest that the ruling class get used to live without electricity and running water ?

        • NBay says:

          Nice notion, but they didn’t listen to Carter, AK, they threw him right out and were BS’d into voting in the great Reagan. What makes you think they are any smarter now? Our world class public education system of the 50’s (at least for those not in the south or ghettos) has been totally trashed, along with the Tax Schedules that supported it and it’s world class infrastructure.

    • intosh says:

      War is often good for the economy, especially the proxy wars. Besides the obvious boost to the weapons industry and adjacent industries, it distracts the average citizens from the main (internal) issues, makes them more docile, willing to accept to work more for less pay as their contributon to fight the boogeyman/scapegoat.

  7. historicus says:

    These central bankers better realize inflation is causing the recessions, not high rates
    Today rates crashed in US
    That wont halt inflation. I can hardly wait for QT

    • AuHound says:

      Please note the recession is already here.

      According to CNBC on Friday the Fed updated their “real time” GDP indicator to around -1.2% for Q2. As Q1 was also neg growth, the US in an official recession of the stats do not change by July 28.

      As the official recession started Jan 1 and interest rates did not start climbing then, you may be right about inflation rather than interest rates causing the recession.

      • Wolf Richter says:


        “As the official recession started Jan 1…”

        No. An “official recession” starts when the NBER says it starts.

        The figure you’re citing is not from the “Fed” but from the Atalanta Fed’s GDPNOw forecast. The “Fed” made no such forecast. The “Fed” is not forecasting any recession at all. GDPNow plunged because of a big negative read from “fixed investments.” Consumers contributed a positive number. You need to read the small print of the GDPNow forecast.

  8. David Hall says:

    German natural gas prices are scheduled to rise by more than a third this month. Gas shortages pressure residential and industrial customers alike. Chip shortages already closed some European auto assembly lines. Automakers exited Russia where auto production has plummeted. COVID lockdowns reduced Chinese auto production. Production is rebounding. China is rapidly expanding chip production to supply their manufacturers.

    • jon says:

      It’s interesting about chip shortages. Semi Chip companies stocks are down big time because of impending weakened demand and chip glut. The walmart and target stocks are down bigly because of inventory glut.

      • Wolf Richter says:


        No one is short the leading-edge chips. What’s in short supply are the old el-cheapo $4 chips from 20 years ago — the trailing edge stuff — that go into the door lock of your car and into the regulator of your washing machine.

        No one invested in new fabs for these old chips because the chips are so cheap and low-profit margin, and when the goods boom took off, there weren’t enough of them to go around. There are several thousand chips in a car, and if one is in short supply, the car cannot be finished.

        Some chip makers are now investing in new plants to build these old chips, and they’re already charging higher prices for them. Price is going to be the solution.

        In terms of the chips that go into crypto mining rigs, the kind that Nvidia makes, they’re going to be in oversupply too, as crypto-mining collapses. But you cannot use those chips for the door locks of the latest vehicle. So you’re going to have a glut of processors for crypto mining rigs and a shortage of cheap chips for power rear-view mirrors.

        • Roger Dodger says:


          I’m impressed by your ability to keep up on the behind the scene details of the economic headlines. You must do a ton of reading.

          Thanks for sharing this information with those curious to know.

        • Seneca’s Cliff says:

          I just moved my shop out to a spot i between two intel fabs in Oregon. In the last two days I have met guys who run chip development companies here ( one power chips the other analog chips) who begged me to do machine work for them as all the other machine shops are booked out for months. But I am still struggling to get my new 5 axis mill running so I can help them.

  9. Old School says:

    When you can’t really pay your bills as a country you have to have dishonest money like Zirp in a high inflation world. Doesn’t take too many years and most everyone is poor. As Jim Rogers says peasants always knew they had to have a little silver or gold stashed in the house for hard times.

    • Escierto says:

      Silver and gold. In this modern age they are relics of the past. At least the market thinks so. The market also thinks the USD is the brightest star of all – the King of Fiat!

      • MiTurn says:

        Hence the Forex — a market to trade one fiat currency for another. Odd, if you think about it viz. precious metals, the traditional store of value.

        I’ll continue to swap my USD for silver…

        • Escierto says:

          They are giving silver away. Eventually we may look back in wonder at $20 an ounce. Just as I look back on how much penny candy I could buy as a kid for five cents.

        • NBay says:

          Stick with the Coin of the Realm……..ALWAYS!
          Unless you have excess money for internet gambling….I mean “investing”.

        • Brant Lee says:


          I’ll pay you $29 each for any amount of 1oz Silver Eagles or decent U.S. Silver dollars you have and any amount you can come up with. That’s a whopping $9 profit to you. So go out and see how many you can buy at $20.

          Otherwise STF up.

      • Augustus Frost says:

        Absolute nonsense

        Gold is still a major central bank reserve asset. It’s also historically overpriced, mostly due to declining faith in fiat but it’s not historically cheap.

        If what you wrote was remotely true, it would be a lot cheaper.

        Silver is somewhat different. It’s not the monetary metal t used ot be and this is reflected in the price and gold-silver ratio.

        • ru82 says:

          If you overlay the chart of M2 supply and gold, it looks like gold is right about where it should be….not overpriced and not underpriced.

        • Brant Lee says:

          Germany and other EU have stopped citizens from buying Russian gold for obvious reasons. What was really obvious also was that Germans were buying all they could get.

          India is now restricting gold imports because their currency is dumping and citizens are pouring into precious metals (For obvious reasons).

          Turkish citizens… well, hope you get the point.

        • AK says:

          IMHO we will find out soon if your theory about gold being overpriced is true. Federal Reserve seem to be serious (at least for the time being) to drive rates higher and do QT, so hopefully treasuries will become a strong competitor to gold. Lets see if gold will retain its price level in the face of this competition. If it doesn’t, then your theory is proven true.

      • AK says:

        Gold 1 year +1% vs USD . Relic or not, it keeps value.

        Silver is down 20% 1 year, reflecting declining demand from the industry. Silver is primarily an industrial metal these days.

  10. Jedi82 says:

    Only in Germany:
    – 9€ free for all on public transportation. Invited a large group of anarchy loving punks (and I mean jeans-jacket wearing, bear-all-day,piss-stained,dog caring people) to take the train to the north island of Sylt. Disruping summer holidays for the mostly elderly posh people, they are spray-puking due to these unforseen side-effects of free money.
    – restaurants in grandioso places like elb-riverside closing down on saturday night due to a lack of staff
    – the minimum payment just increased to 12€/h leading to hair-loss in businesses like bakeries (input cost for butter & wheat is up 100%, the 400 people bakery monthly salaries went up 1 Mio €)
    – I see our engineers still trading crypto on their screen when I enter office without prior notice. ADA coin…
    – I have not seen such low working morale ever
    And I could go on…

    As I see it the small businesses business is completely messed up, I talk to business heads a lot. Fellow Germans are not willing to do the hard-working on high quality any more.

    Now German politics for few bullets:
    – fucked up energy politics
    – school system behind the curve
    – ICE ban in discussion (likely to happen)

    I guess the new reality will teach fellow Germans and Europeans how our wealth was created in the past, but I am afraid we will order new cars from china by the time it sinks in.

    I changed my EUR a good chunk of gold miners, trying to ride out the drop in EUR/USD until we’re cheep enough for US retirees to save the exchange rate.

    I still love the country, just hurts to see left-leaning people and friends who have to clue about energy and industry voting for more political support instead of less.


    • NBay says:

      Where are all the people like you where I live in North CA? Pissing you off would be total kid fun! Some kids here have tri-color hair, tattoos, and faces like a wind chime mobile, and I still don’t see anybody that seems bothered by it. All that gets to people here is driving “errors” (like being 1 sec late at a green light), and then they lay on the horn and/or burn max gas blasting past the offender. Guess we are more of a car oriented culture here.

    • AK says:

      Honest and painful question to you: do you think German population (minus elites) still has the ability to govern itself ?

  11. phleep says:

    Some folks may find the shining easy money path was literally a road to serfdom. Or soldierhood.

  12. Harvey Mushman says:

    Everybody have a nice holiday weekend!

    • historicus says:

      Yes. And to you.
      And on July 4, we should all remember that “taxation without representation” is wrong.
      And if inflation be a tax, and if the Fed promotes inflation on the people (even at 2%), that is indeed “taxation without representation”. And the People certainly have NO representation on the Fed.

      • NBay says:

        I like what the Aussies say about their nationhood; “Better criminals than Puritans and Euro-trash”.

  13. Michael Engel says:

    After rising from 41.50 in Apr 2020, ISM dropped from 64.70 in Mar 2021, when the housing market was rising and oil was in the 60’s, to 53 in June 2022, down 50%, well above 50. Since Mar 2021 the trend is down : we are in recession, recession… JP will hike moderately, dump some RRP, sending SPX up, before election.
    If ISM fail to exceed Mar 2021 high, it might drop to the 44-45 area.

  14. wakarimasen says:

    The really interesting numbers are the
    government debt per person compared to the median wealth per person :

    Italy : 135 % vs 260% 92.000 USD
    France: 98 % vs 230 % 102.000 USD
    Germany : 60 % vs 74 % 35.000 USD
    Holland : 49 % vs 56 % 31.000 USD

    That means the average Italian is 3 times as wealthy as the average German but the italian government is nearly always bankrupt.
    The government is poor but the people are rich. Isnt that nice.
    So in Germany exactly opposite : The government is rich but the people are poor.
    These relations are not new, already in place since some years. But now more wealth transfer is planned by the ECB to the south and no real fight against inflation in sight by Lagarde.
    The numbers you can see on twitter @finanzmarktwelt.

    • Anthony says:


      I think its wonderful the way you Germans have given all that free money to France and Italy. I guess the problem for the ECB, is that the free money no longer wants to be free.

  15. Nebukadnezar says:

    I’m german (50 years old) and whatever happened in the last 15 years wasn’t what politicans told when it came to voting back in the years when we still had the DMark.
    At that time I listened to some critics about the Euro who were interviewed at Tagesschau (public television. Good quality at that time) and I thought ‘No, this won’t happen. My party cares for us germans. They wouldn’t allow this’. I relistened to some of them and have to say they were right.
    What I didn’t understand at that time: it is a political project.
    Normally I would expect (when working with professionals) that those who were right would get the saying now.
    Instead all of this moneyprinting lead to an incredible amount of tax-paid institutions full of unemployable people who want to ‘teach’ everybody about ‘democracy’. Pretty scary.

    Glas industry is about to leave Germany because of high energy costs. Their machinery breaks down if they cannot sustain a certain temperature all the time. There goes another real industry.

    Germany imported an incredible amount of people with no skills in the last 20 years. On the other hand it is very likely that hardly any new housing will be built next year (materials, regulation, labour, money, credit).

    Wage inflation (for skilled industrial workers) didn’t start but will rise soon (this year).

    • RockHard says:

      I think this is common across the west. I feel much the same about Clinton, it all seemed so good when I was young and new to the workforce, riding a rising tide. 30 years later with all those bills come due, you see the emperor had no clothes, and boy oh boy, I never wanted to see Clinton or Greenspan naked in the first place.

    • ChrisR says:

      The Eurozone has made an increasingly smaller number of people increasingly much richer, than would have happened without the existence of a eurozone. The majority of people voted badly. They will pay even more dearly for this than they could imagine. Extreme European politics strikes again. And not a single man, with a small moustache, in sight. (Commission head – female, ECB head – female.)

    • Jdog says:

      ‘No, this won’t happen. My party cares for us germans. They wouldn’t allow this’.

      LOL This is the entire problem. When people deceive themselves to believe that any government is acting in the best interests of the people, then you are allowing yourselves to be victimized. Government is the biggest enemy you will ever have in your life. At the point you forget that you are simply lying to yourself.

      • Nebukadnezar says:

        The discussion about the euro was before it was introduced. I was 25 (?) then. Government in Germany wasn’t bad for a long time.
        I completely changed my mind during the GFC and realized how bad it was. Took the right steps to inform myself what to do and what to avoid in the future. It worked until now.

        • Jdog says:

          To put things in perspective, worker productivity has gone parabolic in the past 40 yrs. due to advances in technology. The wealthy have made gillions off the increase in this productivity while workers have basically not improved their financial positions at all.
          If you want to know why this is, it is because the wealthy and the government collude to make it that way, after all if they allowed the working class to prosper, it would mean they could retire early reducing the work force, and put upward pressure on wages. When you say the government was not bad, you are simply saying they were so good at screwing you that you really did not notice.

        • ERLE says:

          As an SOB I carried the company from methods, programming and kick butt productivity from my get go at sixteen. The old man made gobs from me and did spread it around in the 1980s. I wasn’t well liked as they couldn’t keep up. Nevertheless I was always agreeable and urged them to better their pay by learning more. If you can sort out a machine tool control to make it far more efficient without paying ten thousand to the supplier, everyone on our shop floor is better off. That was proximate to when I got married and with a cheap house, times were flush.
          Now it is impossible to rally toward knockout productivity. Attitudes have changed to an extent that it is unrecognizable from the past. Almost none have the drive to care to learn what will increase productivity and wage. Heck, few of them ever get married to provide for their children needs.
          An attitude change is needed to better the labor circumstances and that requires a concomitant wholesale rejection of the goomint.

      • c_heale says:

        Corporations are the biggest enemy you will have in your life. They have captured the government.

  16. Michael Engel says:

    Taiwan Semi, ASML, Micron, Intel, AMD, Applied Materials, Lam,
    Broadcom, KLA… are all down because of chip shortages.
    F-150 and Silverado are filling safe parking lots, because of chip shortages.

    • sunny129 says:

      Michael Engel

      Shortages or BOOM!?

      Chip sector drops nearly 10% on week as Micron outlook points to declining demand. The semiconductor sector logged one of its worst weeks in an already lousy year following more evidence that the COVID-19 chip sector boom was drawing to a close.

      Micron Technology Inc. MU, -2.95% stoked Wall Street fears that customers may have loaded up on chips during the COVID-19-triggered shortage, and were now holding significant inventories, after the memory-chip maker forecast quarterly sales that were more than $1.5 billion below expectations

      The chip index( SOX) is already down 37.7% for 2022!
      M.Watch July 1, ’22

    • Wolf Richter says:

      Michael Engel,

      No one is short the leading-edge chips that these companies make and where these companies make the bulk of their revenues.

      What’s in short supply are the old el-cheapo $4 chips from 20 years ago — the trailing edge stuff — that go into the door lock of your car and into the regulator of your washing machine.

      No one invested in new fabs for these old chips because the chips are so cheap and low-profit margin, and when the goods boom took off, there weren’t enough of them to go around. There are several thousand chips in a car, and if one is in short supply, the car cannot be finished.

      Some chip makers are now investing in new plants to build these old chips, and they’re already charging higher prices for them. Price is going to be the solution.

      In terms of the chips that go into crypto mining rigs, the kind that Nvidia makes, they’re going to be in oversupply too, as crypto-mining collapses. But you cannot use those chips for the door locks of the latest vehicle. So you’re going to have a glut of processors for crypto mining rigs and a shortage of cheap chips for power rear-view mirrors.

      • Maybe car doors that mine crypto when the car is parked?

        Pays off its own car loan!


        But seriously:

        The genuinely interesting question is what tweaks the Eurozone needs to become a robust mechanism.


        • Anthony says:

          The Eurozone “free money” naturally over time no longer wants to be free and is demanding higher rates in places like Italy. The question is whether the ECB can squash the urge of this “free money” to expand into inflation and higher rates. Using Austrian economics the answer, of course, is no….

      • NBay says:

        What used to be cheapest (maybe $1000+) mining rig now on sale for $499. Was just reading up on it because I didn’t know what the hell DeFi was. Damned acronyms, what comes out of texting is bad enough if one doesn’t text….I don’t see the sense in it, except maybe for school kids….pass notes or cheat on tests.

      • Jan de Jong says:

        El-cheapo but often specialized “automotive” (fit for an inhospitable environment). Not easily replaced by a commercial electronics version.

        • AuHound says:

          Chips come in 3 types: Military, Industrial and Consumer (commercial), based on specs on temperature and vibration.

          A TV in a car has to have chips that meet a much higher temp and vibration range than a TV for a living room for instance.

          In some cases there are different assembly lines for each, for others it is testing: What does not meet mil spec gets tested for industrial spec, then commercial, so it is not always having to manufacture “old” chips.

          Speaking of old, the old RCA 1802 that is in the Voyager spacecraft is still in minor production for legacy systems that need a 25v to 3v power range.

          Good luck on finding an 1802 assembly language programmer though. We are all retired.

        • Exactly. Those old chip processes are much more capable of handling the harsh automotive environments. Even if you fabbed the exact same gates using the newer technology, there is no assurance the part would last past the first time the engine fired up.

      • Michael Engel says:

        U can open a car/ house door without VIM code.

  17. sunny129 says:

    Lagarde is a bluff Buffon unlike our Jaw boning specialist Mr. Powell!

    Lagarde announced last week that ECB has all the TOOLS needed to tame inflation but wouldn’t them in advance! ( Her version of ‘Whatever it takes’ I guess!)
    During the recent ECB forum on inflation, she said that b/c of uncertainties, we have to proceed cautiously and slowly!

    All confidence building maneuvers, right?

  18. Jan de Jong says:

    We were promised a copy of the Bundesbank. We got a copy of the Italian central bank. Whatever it takes I suppose.

  19. Teresa says:

    I hope the EU and ECB gets disolved, goes bankrupt and is gone for good. It is the USSR but European socialist style and I never believe Romano Prodi. He is such a liar and so is all the brussels European government elites.

  20. Bobber says:

    The inflation has damaged the core of our system. In short, people are now questioning whether governments are competent, transparent, and moral. That little dust-up at the US capitol was probably a precursor to something much bigger.

    It’s time to allocate wealth to those who work and earn it. We should not allocate wealth to speculators, debtors, corporate and individual welfare recipients, etc., using system stability and short-term GDP growth as an excuse to discard rational long-term decision-making that is fair and balanced.

    International trade must be balanced (imports=exports) to preserve jobs and communities in every country. Government fiscal spending must be balanced as well. Money printing serves no legitimate purpose and must end.

  21. Dazed And Confused says:

    Can anyone explain what’s going on with the breakeven inflation rate in the US?

    The 10 year breakeven inflation rate is now 2.34% about the same as it was in March 2021 before inflation took off (inflation was 2.6% then, 8.6% now).

    The 5 year breakeven inflation rate is now 2.6% down from a peak of 3.6% a couple of months ago and again very close to March 2021 levels.

    Does this mean inflation expectations are dropping?

    Or is it something to do with QT?

    Some folks on Wolf Street had been speculating that QE had been suppressing breakeven inflation but the end of QE and start of QT seems to be lowering breakeven inflation not raising it.

    • Dazed And Confused says:

      And yes – I do know that the breakeven inflation rate is declining because real rates are going up faster than nominal rates before some wise Alec chimes in with that tautology.

      My question is why are real rates rising faster than nominal ones?

      Is it because Fed was a bigger player in TIPs markets than regular Treasury market so flipping from QE to QT has a bigger impact on TIPs than Treasuries?

    • Wolf Richter says:

      Ignore it. This is based on two bond market rates, the 10-year yield and the TIPS yield, and both are hyper-manipulated by the Fed. The Fed bought a huge amount of TIPS during QE precisely to repress these bond-market measures of inflation in order to falsity the signals about inflation from the bond market. It cited these breakeven measures to show that inflation was “temporary.”

      Nothing that comes out of the bond market is really market based, after the Fed bought $9.7 trillion in bonds.

      • sunny129 says:


        “Nothing that comes out of the bond market is really market based, after the Fed bought $9.7 trillion in bonds”

        Very True

        Those ‘false’ signals are reverberated across financial media to convince sheeple that everything is ‘hunky-dory’ until the ‘real’ inflation erupted after 41 yrs of deflation

        Bond yields are fluctuating by the day, between fear of sticky or increasing inflation vs fear of Recession ( Atlanta Fed – 2nd Qtr – Negative 2.1%)
        May be ‘stagflation’!?

  22. Tribal Cash says:

    The EU is a fake union, a completely artificial construct designed by people who are used to managing from the top down.

    A long time ago it looked like it might be a viable strategy to counter Asia’s rapid growth, but that fantasy doesn’t exist any longer.

    At this point the only defense left to the West is hard local borders, local commerce, local federations etc.

    The UK/U.S./etc ruled the world for a while and now is worried about having to eat the food it cooked and served to others for so long.

  23. Nate says:

    Once it was pointed out that Europe has a central monetary policy, a single currency, but a scattered fiscal policy, tax policy, and mixed intrastate policy, I cannot unsee the fault lines.

    Fear of fragmentation? No shit! The system is stupid. It’s like the articles of confederation with a central bank run by the Germans.

    Maybe it’s my American bias, but when you are dealing with economic policy either do your business or get off the pot.

  24. ru82 says:

    I have a few cryptos at the Exchange Voyager….the one Mark Cuban is either an investor or a promoter.

    I just got an email:


    Today we made the difficult decision to temporarily suspend trading, deposits, withdrawals, and loyalty rewards. The app will be down for a short transition period. After that, you will still be able to view market data and track your portfolio, and you will receive rewards payments for the month of June.

  25. Joseph says:

    Don’t you think US should do that too ? To QT some sectors/industries while QE others , as some would simply self-destruct on QT ?
    Or is it already implicitly done for too big to fail corps?

    • AK says:

      Did US government do a good job of managing economy during last 20 years ? If you give this government a choice to choose which industries will get QE and which QT, do you think this government will do wise choices ? For example, Bitcoin “industry” is really hurting right now, shouldn’t government help it by assigning it to QE camp ? A lot of people and financial institutions would wholeheartedly support this idea.

      IHMO we need to keep government out of this, they have done a lot of damage to our nations already. Lets give a chance to the negative part of capitalism’s business cycle to run its course unimpeded, and do the reality check on every business.

  26. Kpl says:

    2 questions that arise are
    What are the chances of EU breaking up?
    How long can ECB do QT Germany and QE Italy and Greece?

    With the Fed at its hawkish best.

    • Anthony says:

      One chance of it, depends if Russia cuts the gas off when the weather and Germany goes cold.

    • sunny129 says:

      ‘How long can ECB do QT Germany and QE Italy and Greece?’

      Is that even possible? How does it work in the real world?

  27. Jdog says:

    The EU like the US are learning the hard way the reason why big government is a bad idea. Given the opportunity to do so, government will always screw up everything it touches.
    Politicians are basically idiots with no practical experience in doing anything other that lying and cheating to get their selves elected. It is not that they screw everything up on purpose, it is that they are so completely incompetent that it is the only possible outcome.
    Historically, when they screw things up bad enough, they get their respective countries into major wars to redirect the public anger away from government and towards other countries. I expect that is what they are preparing to do now.

  28. AK says:

    “it ends QE overall, but conducts QT for Germany and QE for Italy, or whatever”

    Will that not lead Germans to ask why they have to suffer an inflation caused by ECB policies if these policies are to exclusive benefit of Italy or Greece ? Will that not increase the tension between nordics (like Germany) and the southern EU members (the opposite of what ECB wishes to achieve) ?

    • ChrisR says:

      Might do. But then the Germans have a choice to make. Do they like more,d the competitive advantage the Euro gives German industry, the jobs, the welfare and pensions. Or does the prospect of having to bailout the Italians and Greeks and all the others make them want to vote to get out of the politically corrupt EU before the whole thing goes down in flames?

  29. Beardawg says:

    Selective QE if your country sucks (e.g. Italy). QT if you are comparatively healthy (e g. Germany).

    Sure seems like a recipe for infighting. I guess it really is no different than our Congress spreading Fed $$$ to the chosen ones and targeting PR-unfriendlies with regs / bad press.

    On the scoreboard though, US appears to be winning the battle of “who is screwing up less.” (by a slim margin).

  30. Xaver says:

    I am living in Germany. On a day like today I am happy I am still holding all the gold I bought more than 15 years ago.

  31. Henry says:

    The Euro, EU sucks for all of Europe. Germany already had a strong, well recognized currency called the German Mark and they were all stupid to give up their sovereignty of their countries. The Swiss and UK did not give their currency up, ask why?

  32. Jack Webb says:

    Does anyone care to explain in clear, cogent terms, and without any more political baggage than is necessary (preferably none at all), why negative interest rates undermine European banks?

    I’m a sometimes-intelligent non-specialist, and my question is in no way rhetorical or leading. Lay out the mechanics of it if you’re knowledgeable and interested in doing so.

    • Wolf Richter says:

      Banks borrow money cheaply and short-term and lend long-term at a higher rate. The spread is their profit. That’s the fundamental business model. They borrow most cheaply from depositors. But depositors take their money out when they get hit with negative interest rates. So banks cannot really charge negative interest rates (a few tried) because they lose their customers and deposits, and therefore funding. But negative interest rates push down the lending rates that banks charge on their loans. And this squeezes their profit margins.

      The ECB came up with a special subsidy for banks because they got hit badly from negative interest rates.

      Look at European banks stocks and Japanese bank stocks going back to the 1990s, and you’ll see what happened.

      • Jack Webb says:

        How does that square with the idea that deposits are liabilities created by loans?

        • Wolf Richter says:

          You need to take accounting 101. It’s the best investment ever. What you said is nonsense.

          When you put $100 in the bank, the bank does TWO things with this $100 on its books:

          1. it increases (debits) its asset account, called “cash” by $100. This is the cash it can earn money with.

          2. it increases (credits) its liability account, called “deposits” by $100. This is what it owes you.

          The bank does with the $100 asset whatever it wants, including lending it out. If it lends out the $100, it will be moved from the asset account “cash” to the asset account “loans.” (it credits the “cash” account by $100, and debits the “loans” account by $100).

          The interest earned from the $100 loan will be credited to an income account.

          All the while the liability account “deposit” (the amount it owes you) doesn’t change.

          Go take an accounting course. It will open your eyes.

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