The European Central Bank has raised interest rates yet again, despite the persistence of very high unemployment outside the core EU countries. Why? Because continued low interest rates might run the risk of overheating things in Germany, where the economy is fairly strong. Matt Yglesias argues that this would be fine:
If you think about the problem of divergence between the low unemployment German-led “core” block and the high unemployment periphery, it seems to me that persistent labor shortages in the “core” are exactly what’s needed. That should either induce migration from Spain, Portugal, etc. northward to where the jobs are or else induce core-based firms to find ways to shift some production to the periphery. Obviously, that’s not an ideal strategy....
He's right, of course, but "not ideal" is a considerable understatement. The German public, which is already being asked to bail out the Greeks and Irish and the Portuguese, would go berserk if the ECB deliberately followed a policy that encouraged either outsourcing of German business or migration into Germany from countries on the periphery. The ECB knows this perfectly well, despite its supposedly nonpolitical mandate, and it also knows perfectly well that German support is still critical to the success of the euro project going forward. So monetary policy will continue to be made with Europe's core countries in mind, and the rest of the euro area will just have to live with it.
Whether that works out in the long run is a very good question. We'll see.