Wednesday, September 8, 2010

The Euro Zone's Next Big Headache

by Richard Barley

Wall Street Journal
September 7, 2010

Every silver lining has a cloud. Whatever relief the European Central Bank may feel at the burgeoning euro-zone recovery will be tempered by concerns over the growing divergence between individual countries. This divergence— like the imbalances earlier this decade that helped cause Europe's current debt woes—may be persistent as a result of austerity politics, posing a new headache for policy makers, shackled by a one-size-fits-all interest rate.

While the German economy is booming, growing at 3.7% on the year in the second quarter, Greece contracted 3.5%. And while Austrian unemployment is just 3.8% and has been falling, Spanish joblessness is stuck at 20.3%. Personal, corporate and bank borrowing rates also vary widely across the continent.


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