I
found this article (link here) interesting in that the author states that the recent
actions in the Eurozone have had a positive effect on improving the overall
economy. In the second paragraph the author writes, “Austerity
is no longer a drag on growth, monetary stimulus is in overdrive, banks are
healing, oil and the euro are cheap, and structural fixes to their economies
are bearing fruit. While not exactly the world’s locomotive, the eurozone is no
longer its caboose.” Four policy factors contribute to the author’s positive
attitude.
Firstly, the European Central Bank (ECB) cut interest rates into
negative territory about a year ago and then last month began buying stimulus
programs, which drove the value of the Euro down. The author expects that the
low interest rates, cheaper currency, and the high demand for stocks can be a
strong stimulus. Secondly, since 2011, the European governments are cutting spending
and increasing taxes in an attempt to return fiscal honesty and assure that investors
will not accumulate large debts. Thirdly, the European banks have not only raised
new capital significantly, but have also thoroughly assessed their asset
qualities and measures to withstand another recession. Finally, structural
reform in the government appears to be effective; that is, austerity measures
in various countries have decreased in an attempt to increase the labor market
flexibility and the make business environment more conducive to grow.
Regardless of the authors hopefulness, he does say that the
European banks and government should still be cautious. He states the growth
rates look good since they are compared to the recent historical trends. Additionally,
the long-term potential is still hindered by both the lack of employed population
and the low inflation rates in the Eurozone. Lastly, it is possible for the Greeks
to default on borrowed money to the IMF, ECB and other banks.
Ultimately,
whether the Eurozone will improve is political. Only if the European countries
do not return to austerity measures prematurely, Greece is able to achieve
tangible goals, and the ECB is able to effectively stimulate the private sector
then the Eurozone is surely to experience a slow recovery.
Overall,
I am curious to see what others think about the recovery rate of the Eurozone.
The signs of recovery in the eurozone that Ip points out are good. However, as pointed out, the issue from here is still unstable because of politics. I think that measuring recovery in the Eurozone before all the issues with Greece and its possible exit are straightened out would be a premature mistake, as such an event would surely have a negative effect on recovery.
ReplyDeleteI can agree that Greece's crisis and possible exit makes the recovery rate of the Eurozone temporarily unpredictable in some ways. After all, Greece's exit and condition is most threatening to the current growth that the EU is enjoying. It's also unknown/premature to know how QE will impact the Eurozone, although signs so far indicate that the policy is positive. I'm encouraged by a lot of articles recently on "Europe getting it together" or "EU finally show signs of recovery"; however, some of them ignore what could happen to Greece and how it could definitely be catastrophic to the EU! I think it's important that the author recognizes that banks need to still be cautious, given the unpredictability.
ReplyDeleteI personally think that the author is way too positive. Yes, the eurozone is doing better but it is just relative compared to where they were. The eurozone is still doing poorly in some areas and the Greece situation is a major concern. The key for the area is Greece avoiding exit, if that happens the future looks better.
ReplyDeleteI agree with Nolan, this article makes the eurozone seem like it is in a much better economic position than it really is. The eurozone looks like it is doing well compared to recent history, but the economy is nowhere near its economic stance prior to the crisis. I think that the eurozone needs to avoid Greece leaving. If Greece left, it would discredit the eurozone because membership is supposed to be irrevocable. Also, I do not think Greece would be prosperous by exiting the eurozone and returning to the drachma. A Greek exit could cause a much larger crisis than a default. All areas of economic and political concern need to be taken into account before providing such a positive outlook on the eurozone.
ReplyDeleteThe most interesting question to me is what will happen to the Eurozone if there is indeed a Grexit? This author states "Greece might have to impose capital controls and, ultimately, leave the euro. Nobody knows what would happen then." As this was an unsatisfying answer, I did a little research and found what other economists are predicting. Business Insider reported "rampant inflation, political unrest, debt defaults and a possible "contagion" within Europe's financial sector" could be triggered by Greece leaving the Eurozone. I think it would be really interesting if we went over some of these possible outcomes in class.
ReplyDeleteSimilar thoughts: although it seems like Eurozone is doing better compared to the past, but the situation in Greece is getting worse (as I was reading the other blog). These two situations are contradicting to me. Curious to know about the possible outcomes of Grexit as well.
ReplyDeleteAlthough the Eurozone appears to be doing well, I think it is premature to make predictions on the strength of this currency. Also, we have not observed the full benefits of the QE in its entirety. Meaning, if the eurozone countries will benefit from QE not just in the short-term but the long-run as well. The author of this article argues that Grexit will negatively affect the state of the eurozone. I think it would be interesting to observe just how Grexit would impact the state of the eurozone as well as what it means for Greece and their major lending countries. Personally to me, it seems like we have heard countless argument stating why Grexit would further damage the eurozone. However, I am curious as to whether Grexit is the worst option for the eurozone or that it may not be such a bad option after all?
ReplyDeleteI think it is too early for the Eurozone to declare economic growth. Although the Eurozone seems to be doing well economically, the growth is not too strong in that it still has to deal with the Greek crisis. I also agree that Grexit will have a negative effect on both the Eurozone and Greece.
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