http://www.economist.com/blogs/freeexchange/2013/03/euro-crisis-4
This article discusses the state of the Eurozone economy in the wake of the situation in Cyprus. It cites that the region has several economic problems but most of these are shared by many other economies in the world. It does focus in on one issue that currently sets Europe apart from other developed nations - a falling growth rate for NGDP.
It points to Europe's shrinking monetary base and the potential future consequences that could manifest in deflation and falling wages. It cites the central bank's role to play in this as critical and stresses the importance of good monetary policy. While inflation is always a concern that is best avoided, Europe cannot afford to slip into deflationary circumstances either. It would be best if action is taken now rather than delaying it until another crisis strikes.
This article discusses the state of the Eurozone economy in the wake of the situation in Cyprus. It cites that the region has several economic problems but most of these are shared by many other economies in the world. It does focus in on one issue that currently sets Europe apart from other developed nations - a falling growth rate for NGDP.
It points to Europe's shrinking monetary base and the potential future consequences that could manifest in deflation and falling wages. It cites the central bank's role to play in this as critical and stresses the importance of good monetary policy. While inflation is always a concern that is best avoided, Europe cannot afford to slip into deflationary circumstances either. It would be best if action is taken now rather than delaying it until another crisis strikes.
I agree that the bank should step in before this problem gets worse. I think it would be beneficial for the central bank to increase the money supply just enough so that it does not cause high levels of inflation, but is enough to avoid deflation as well.
ReplyDeleteWithin the article, the last part is the most important. Monetary policy cannot fix or rectify a recession on its own, but monetary issues can prolong a recession. Good central banking is a necessary, but not sufficient, element of growth, and Europe really needs to work on that since the economic recession.
ReplyDeleteThe problem is that the Central Bank remains at an impasse for what to do because too many treaties were broken and promises weren't kept. Now everyone has the same currency and the stronger countries don't want to devalue their currency. If every European government operated in a similar manner from the beginning, this wouldn't have happened.
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