while the author was busy compiling some new entries for the ongoing Target2 debate, he stumbled over a question asked by @KantoosEcon in a blog post already known: Wie eine berechtigte Kritik an Target-2 aussähe
"Wie gelingt es, regionale Inflation einzudämmen, wenn sie nicht gerechtfertigt ist, aber dennoch entsteht? Zum Beispiel indem man einen kreditfinanzierten Boom begrenzt, und sei es durch die Erschwerung des Kreditzugangs oder gar durch die Aussetzung von Baugenehmigungen oder prohibitive Grunderwerbssteuern."
"How to successfully contain regional inflation, if it isn't justified, but arises nevertheless ? For instance by limiting a credit financed boom, and be it by limiting access to credits or even by delaying building permits or punishing real estate transfer taxes"
"How can we initiate a European fiscal fund to stimulate regional economies ?""Wie können wir zur regionalen Konjunkturunterstützung einen europäischen Fiskalfonds auflegen?"
Well, it was already explained here & here , that there are ways to circumvent the dilemma of the ECB, which is: to have their base lending rate at their disposal in order to increase when there are inflationary tendencies looming. The ECB has only a 'global weapon' to its disposal, where the 'ammunition' is targeted towards the eurozone as a whole and not to individual member states.
The idea of containing the real estate sector by taxation and permits isn't bad, since it would also direct the 'economic fine adjustment' to the individual states, which still have some flexibility. But it's not right to think just about Spain and their already imploded real estate bubble or Germany and their currently inflating bubble.
There are many more parts of economies which can show some inflation. The purpose of limiting lending to those 'emerging bubbles' can be served by putting pressure on the lending banks, not by 'broad base rates' imposed by the ECB, but by 'narrow profit taxation' (by the way also the instrument of choice to counter the often very slow, delayed reactions to lower base rates by banks)
Well, that question has also been answered 'fiscally' before: by taxation or better lowering of taxation of profits made by investments in those countries which are currently in the doldrums. Or by playing it by tunneling funding through the EIB. (or Mr Draghi targets another 'Big Bertha' towards EIB (as was briefly discussed here in conjunction with EFSF) , which would not be against European law.)
But it is not the instrument of choice, which would be to initiate privately financed infrastructure funds as a 'bazooka of the real economy' and by a coordinated European economic policy in general. So far most European politicians performed 'splendidly' by ignoring every other real opportunity offered to them. (As explained in detail in the end of Nov '11 while we were facing a dry up of state funding and a breakup of the eurozone in the main section of eurozoneremarks: 'Be Superman, not Clark Kent' eng & ger)
1+2) fiscal 'fine tuning' requires continued surveillance of ECB, regional central banks (Which shouldn't pose a big problem), recommendations to their local governments and a willingness to comply in full by politicians and perhaps a common ground/commitment by incumbents and main opposition alike. (Which could pose a big problem)
Dutch research institute CPB (@centraalpb) on Tobin tax:
"A VAT on financial services, a bank tax or a tax on financial activity would be more efficient the CPB says in a finding that was made by request of the cabinet."CPB: "Financial transaction tax not efficient"[/update]
The euro crisis: Which fundamental issues has Europe solved? (The Economist)