Empty Words Put Eurozone In Downward Spiral

Financial inertia has seen inflation in the Eurozone drop to the lowest level for five years and the threat of deflation is starting to cast a shadow over the region’s recovery.

Political prevarication has shackled the European Central Bank (ECB) for years as president Mario Draghi has rattled his sabre and said all the right things investors and businesses want to hear but has failed to act.

To outsiders, he has the will but not the backing of his political masters – and for that read the governments sitting in Paris and Bonn.

Eurozone inflation is now an unhealthy 0.3%, the worst return for five years.

The result is stagnant growth and falling spending power against other major currencies for the populations of the 18 countries making up the single currency.

Growth spurt needed

While the Pound and US dollar are cashing in and seeing their economies grow at around 3.5% a year, all the criticism they received from the European Currency Union about how they were handling their recovery seems misplaced.

As the US and UK are upbeat and thriving, Europe is shrouded in doom and gloom.

The ECB inflation target is to hover somewhere around the 2% mark, but without a growth spurt this seems a distant objective.

The French economy is faltering under the leadership of socialist Francois Hollande, and as the second biggest economic powerhouse in the single currency behind Germany; this spells bad news for the ECB’s efforts to get back on track.

Draghi has famously announced he would do whatever it takes to get the Eurozone economy moving, but so far he has failed to use the tool wielded in the US and UK to accomplish the task – quantitative easing.

No money to spend

The depression across Europe is not helped by high unemployment – hitting 11.5% in August compared with around 7% in the UK.

That figure is an average – the jobless rate has been 26% in Spain and as low as 4% in Germany, so clearly life is different across the Eurozone.

A lack of jobs and inflation keeping wages down means no one has cash to spend, and unless people and businesses generate that cash, firms have no customers to buy their goods.

This circle of despair is driving down demand and prices, but no one has the confidence to buy or invest to lift the gloom.

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