Sunday, October 26, 2014
Euro Zone at Risk for Recession Relapse
The president of the European Central Bank warned members of the Euro Zone that if they did not agree on policy and push forward economic reforms, that the Euro Zone may be looking at another recession in the near future. With unemployment still extremely high, some countries believe that they should increase their spending to help get out of the recession. Other countries believe that you can't just have monetary policy and you need to have other policies put into place as well. Do you think the ECB should lessen its regulation on spending to allow economies to try to grow bigger? Or is the ECB right in restricting spending? What would you say if you were sitting in on the summit?http://www.foxbusiness.com/economy-policy/2014/10/24/ecb-draghi-euro-zone-at-risk-for-recession-relapse/?intcmp=fbfeatures
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I somewhat have a problem with the EU's strategy to alleviate their economic problems. It is obvious that the EuroZone is lead by Germany, which personally thinks that austerity is the correct measure to spur on an economy. France and Italy, as shown in the article, do not quite hold the same beliefs. The problem with these countries being on a common currency is that they feel that they need to agree on fiscal policy. But, frankly, social attitudes shape fiscal policy more than anything, and in the southern European countries large government spending is favored to austerity.
ReplyDeleteI deny that there is one "right" response to a deficit. Obviously on one side of the argument there is the United States clamoring for more active monetary policy, on the other side is Germany asking for the countries to cut programs. I think, before joining together to make a common currency, countries recognize that they will need to cooperate in order to make effective fiscal policy. In the current political climate it seems like Germany is dominating proceedings and the other countries are forced to follow. I would call for more fiscal autonomy or (dare I say it) maybe a reconsideration of a common currency. Maybe a common government has to come with a common currency?
Well I think one of the biggest issues that the EU is trying to overcome is
ReplyDeleteunemployment. Europe is also currently experiencing extremely low inflation (nearing on deflation), so expansionary monetary policy would be the best tool to fight both unemployment and deflation regarding the aggregate. Obviously the eurozone crisis is a complex and multifaceted issue, so there would need to be a strong fiscal policy in place as well. Deciding on who implements these policies, and for whom they're implemented, also poses just more obstacles for the EU to overcome.
I think each country in the eurozone is trying to protect their own benefit first, which would be understandable. However, when countries are in the same group, they should the whole group' s benefits first to fix the whole problem. The whole debate about fiscal policy or monetary policy sounds right response to deficit problem but it could not fix the root of the problem.
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