It wasn’t long ago that victory was declared. “The crisis in the eurozone is over”, said French president François Hollande last year. The European commissioner for economic and monetary affairs, Olli Rehn, followed some months later: “We have green shoots now in the European economy”, he announced at a “citizens dialogue” in Estonia. “[W]e expect that the European economy will continue to stabilise and return to recovery. And, next year, the European economy will stand on firmer economic footing and we will have better economic growth.” Promoters of austerity economics began to crow over what was pretty desultory growth. “The recovery in most of the EU Member States is now becoming more self-sustained”, claimed the European Commission’s Spring Economic forecast. It didn’t last long. The three largest economies, Germany, France and Italy, contracted or stagnated in the second quarter of this year. Industrial production is again declining. Deflation has appeared in more than a dozen countries, threatening to increase already overwhelming debt burdens in the Southern economies in particular. Deflation also makes recovery from recession particularly difficult. Global growth forecasts everywhere have been downgraded as concerns mount. One of the worries, noted by Wolf, is that monetary policy may have reached its limits. Prevailing wisdom says that when central banks push down interest rates, companies will borrow to invest. Then economic growth should be stimulated as investment triggers production, greater labour utilisation and consumption. Yet the monetarist orthodoxy has not been able to turn the situation around.
Posted on: Wed, 05 Nov 2014 11:01:03 +0000