Eurozone Dipping Towards Deflation Danger Zone

Despite promises to do ‘everything possible’ to drag the Eurozone out of recession, European Central Bank president Mario Draghi has failed to deliver economic growth and stability.

Inflation across the 18 single currency nations dipped to a five-year lower of near zero, pushing the Eurozone into the deflation danger zone.

The year-on-year cost of living increase was just 0.3% against a 2% target.

Now, European finance ministers are calling for action not rhetoric to stem the slump and a halt to the Eurozone’s stagnating economy.

Many claim economic tools like cutting interest rates to 0.15% and a negative 0.1% rate for savers have failed to spark the single currency zone into life.

Tough decisions

Now, Draghi is calling for politicians to step in and draft policies to help the euro rather than leave all the work to the ECB, which is proving not to be up to the task.

Governments face some tough decisions. Low inflation, unemployment running at more than 11% and economies withering under the pressure of financial bail outs are anchoring the Eurozone in economic stagnation.

More than 18 million people are out of work in the Eurozone. In Spain, the level has been as high as 25%.

Those same leaders in France and Germany, the economic powerhouses of the Eurozone, launched withering attacks on policies that hauled the US and Britain out of the depths of recession now have to account for their failings and act to save their own nations.

The problems were summed up by Aberdeen Asset Management Investment Manager Luke Bartholomew.

Investment call

“The Eurozone economy is not in a good state of health. Draghi is no longer an economist trying to save the euro, but a politician trying to rally leaders to his cause. They have to work together to get Europe on the road to recovery,” he said.

“Draghi is between a rock and a hard place. The markets want action but Eurozone institutions are refusing to budge. All the time, deflation is looming ever closer and we hear a lot of talk about what’s needed but no one is actually doing anything.”

German finance minister Wolfgang Schaeuble has given his backing to Draghi’s call.

“Monetary policy has bought time but cannot solve the problems,” he said. “Now, the Eurozone needs to invest more without governments building excessive deficits.”

He has also tentatively suggested a program of quantitative easing – something the UK and US implemented years ago to boost their economies.

Below is a list of some related articles, guides and insights that you may find of interest.

Questions or Comments?

We love to get feedback from our readers. So, after reading this article, if you have any questions or want to make comments, send us a message on this site or our social media?