Everything that is wrong with financial markets’ current thinking about the euro zone

Financial markets’ current thinking about the euro zone is flawed in many ways. If a recession occurs due to energy supply problems, it will cause a further rise in inflation, not disinflation. If fiscal policy is expansionary and the euro depreciates, a modest rise in interest rates will have no chance of significantly curbing inflation. As long as the unemployment rate is declining or simply remains lower than the structural unemployment rate, core inflation will rise , not fall. For inflation to fall in the euro zone: Either the scarcity of commodities must end and their prices must fall significantly; Or monetary policy must become far more restrictive than financial markets expect; Or fiscal policy must become restrictive.