Since 2008, the Eurozone has been facing a financial crisis, a sovereign debt crisis and a public health crisis. With soaring energy prices, it should now prepare for another test: an adverse and deeply asymmetric supply shock.

PARIS – The economic situation in Europe is truly disconcerting. Annual inflation in the euro zone has reached a record high of 7.4%, but banks are still lending to each other at negative rates. In April, year-on-year inflation in Estonia was a hair’s breadth of 20%, but only 5.4% in Malta. Public debt as a percentage of GDP is at all-time highs, but German bond yields remain well below their long-term average and spreads, although rising, remain contained. Across the continent, leading economic indicators are sending confusing messages.

Governments and central bankers were caught off guard by the sudden transition from a deflationary to an inflationary environment. The same politicians who in September warned that deflation was at least as threatening as inflation are now saying that we have entered an era of structural inflation.

The European Central Bank talks about “normalization,” as if repeating that mantra could convey a sense of control, temper inflation expectations and calm financial markets. But little is normal.

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