Can America Restart the Engine of Growth and Prosperity?
March 7, 2013 in Business
With the relative calm in the eurozonelately, one might be led to believe that the worst is over and economic growth is about to ignite. Nothing could be further from the truth.
The latest data on the eurozone show that unemployment increased in January to a record high of 11.9%. This is the highest unemployment rate since 1995, when the 17 nations within the eurozone started to keep record. (Source: Brittain, A., “Unemployment Worsens in Euro Zone,” Wall Street Journal, March 1, 2013.)
Recent elections in Italy revealed the growing anger from the eurozone’s citizens at the country’s lack of economic growth. Italy experienced one of the largest increases in unemployment within the eurozone for January, jumping to 11.7%, an increase of 0.4% from December.
While the European Central Bank (ECB) and politicians in every country have been trying to re-ignite economic growth, the fact is that the eurozone reported a decline in its gross domestic product (GDP) of 0.6% from the third quarter to the fourth quarter 2012.
This isn’t just far from economic growth; it’s a serious contraction. This should worry Americans, because our own economic growth is stalling. If the major industrialized nations have no economic growth, who’s going to pull us out of the quagmire our economy is in?
The ECB still has some ammunition left in its arsenal, since inflation is actually receding. The latest inflation numbers for the eurozone showed an annual rate of 1.8% in February, a decrease from the two-percent level in January. With the ECB holding its main interest rate at 0.75%, there is room for additional monetary easing.
The real question is: will additional monetary policy ignite economic growth within the eurozone? I don’t believe it will, since we’ve already seen a tremendous amount of liquidity added with little effect.
Enacting easy monetary policy to try and generate economic growth is not a long-term solution. If there is a funding or liquidity crisis in the short term, providing monetary policy to ensure stability might be appropriate.
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