Can The Eurozone Really Bounce Back From Recession?

Frankfurt, home to the European Central Bank. Here, they are lagging behind The Bank Of England and the Federal Reserve when it comes to taking decisive action to prompt growth, and less creative in its choice of tools to get the job done.

Germany has just narrowly avoided a triple-dip recession, a great relieft, but expectations for Europe’s two largest economies are still low. Things are looking slightly more rosy in France, with news that the economy had grown by 0.3%. Don’t be fooled though, this growth hides are a more fundamental weakness in the country. This growth was entirely due to the French government’s spending, combined with the accumulation of unsold goods.

It isn’t just France and Germany where things are looking bleak. They aren’t the exception, but rather indicative of the Eurozone as a whole. Unlike the United Kingdom and United States, the eurozone has never really shown convincing signs of recovery from the recession of 2008.

So why exactly has Europe suffered so mcuh? The European Central Bank has been slower than the Bank Of England  and the Federal Reserve in taking action to boost their economies. Quantitive easing is now on the horizon for the eurozone, something that the US and UK enacted almost six years ago.

Austerity in the eurozone has weakened domestic demand. Attempting to reduce budget deficits before growth returned was a huge mistake on the part of the German government. With consumers reluctant, or unable to spend, and businesses not investing, Europe has been largely dependant on exports to keep the economy afloat. Slowing growth in the strongest emerging markets has made it harder to sell good overseas. Trade within the Eurozone has also stagnated, adding to the turmoil.

There is, however, some happiness to be found amongst all this doom and gloom. The fall in oil prices will mean lower energy bills and help to boost the disposable income of consumers. The tumbling value of the Euro means exports to the rest of the world are more competitive.

Policy makers must be careful to not confuse narrowly avoiding another recesssion with decisive growth. Clearly, the road ahead is still rocky for the region and there is no guarantee that it will really recover at all. What the eurozone needs is clear action from the European Central Bank and European Investment Bank. Germany will play a crucial role in the recovery, and to do so it must realise that

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