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Level -> Trouble ahead for the Euro? (4/11/2008 4:27:31 AM)
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quote:
AT THE World Economic Forum in Davos in January 2001, the mood was sombre. The dotcom bubble had burst spectacularly, the Nasdaq stockmarket had crashed, and the American economy was tipping into recession. Yet most continental Europeans were breezily optimistic. The long years of being lectured about their inadequacies by the Anglo-Saxons were over. Europe had wisely skipped the dotcom mania, and its new currency, the euro, was giving the continent a boost. Some Europeans even dreamed of taking over as the motor of the world economy. But it was not to be, as Europe promptly fell into a deeper recession even than America.
Seven years on, the parallels are uncanny. Continental Europe has sensibly avoided America's subprime follies, it is argued. Its banks are in better shape, average euro-area unemployment of 7.1% is the lowest in almost 20 years, the euro is resurgent and, as Joaquín Almunia, the engaging European economics commissioner, insists, there is no sign of a recession. The commission will trim its forecasts later this month, but euro-area growth is likely to stay close to 2% this year. It is true that the European Central Bank (ECB) in Frankfurt has, like America's Federal Reserve, flooded the financial system with liquidity in response to the credit crunch. But unlike the Fed, it has not so far felt the need to bring down interest rates.
Just as in 2001, however, the outlook for the euro area seems to be deteriorating a lot faster than the optimists had expected. After all, the main reason that the ECB has been reluctant to cut rates is not because growth is so robust but because inflation has picked up to 3.5%—the highest in the euro's nine-year existence. Troubles in the region's two biggest export markets—recession in America and slowdown in Britain—are starting to bite. Exports to Asia have been strong, especially from Germany, but in most countries nervous consumers remain reluctant to spend.
http://www.economist.com/world/europe/displayStory.cfm?story_id=11016305&fsrc=nwlbtwfree
Hasn't the uptick for the German economy been due to further embracing of free-market techniques? Just curious....
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