Implementing an inflationary monetary policy will not make lasting reductions in unemployment, but will actually serve to exacerbate the problem over the medium term. As we know, inflation distorts saving and investment decisions, raises the risk premium in long-term interest rates and undermines the allocative efficiency of the price mechanism. In addition, it is particularly detrimental from the perspective of social justice.
The underlying structural nature of the European unemployment problem can be seen most strikingly if one compares developments in Europe with those in the United States over the last three decades. In 1970 the unemployment rate in the United States, at around 4%, was at least twice as large as that prevailing in most European economies.