Monday, July 28, 2014
Euro crisis is sleeping, not dead
July 28, 2014
Euro zone policymakers may feel they can afford to relax this summer. That would be a terrible error. The euro crisis is sleeping, not dead.
The region is suffering from stagnation, low inflation, unemployment and debt. The crisis could easily rear its ugly head because the euro zone is not well placed to withstand a shock.
What’s more, it’s not hard to see from where such a blow could come. Relations with Russia have rapidly deteriorated following the downing of the Malaysia Airlines flight over Ukraine. If Europe imposes sanctions that make Moscow think again, these will hurt it too.
The euro zone needs to take measures to insure itself against disaster: looser monetary policy by the European Central Bank to boost inflation; a new drive for structural reform, especially in France and Italy but also in Germany; and some loosening of budgetary straitjackets.
First, though, look at the problem. Financial markets have been calm for the last two years since Mario Draghi, the ECB’s president, said he would do “whatever it takes” to preserve the euro. But the euro zone is barely growing. The International Monetary Fund last week predicted it would notch up just 1.1 percent growth this year. That’s a pathetic rebound given the recession’s severity.
There are, admittedly, some bright spots. Spain is enjoying a moderate recovery, largely as a result of effectively implementing root-and-branch reform of its labour market and banking system. Even Greece seems to be on the road back from Hades.
Posted by Yulie Foka-Kavalieraki at 8:49 PM