Eurozone Stimulus Looms as Wage, Inflation Decline

Topics: Monetary policy, European Union, Central bank Pages: 2 (372 words) Published: April 5, 2013
Eurozone stimulus looms as wage, inflation decline

Governments and central bankers in the Eurozone are getting a little flexibility due to lessened inflation pressure, heads are turning towards stimulating economic growth. According to EU’s statistics office, they’ve hit the lowest annual inflation 1.8% in February.

Some are raising expectations about the possibility of ECB cutting interest rates this year, because of the weaknesses in the Eurozone. Whereas opposed many are unsure of more interest cuts because of the already record-low 0.75%. Reuters poll shows more than half of economists do not see ECB cutting interest rates more than they have, and predict they will keep it stable for the rest of the year.

According to Citigroup “With inflation set to undershoot the ECB’s objective, an interest rate cut appears to be largely constrained by the prospect of an economic recovery in the second half of this year.”

Shrinking of the Eurozone economy by 0.3% is to be expected over the current recession. Due to the public debt crisis and government spending cuts, the households and businesses are in quite a snag.

In the summit held in Brussels, Barclays economist Philippe Gudin states “Market pressure on European governments has been replaced by people pressure as a result of austerity and reform fatigue.” In reply to the protesters who are blaming EU leaders for the current predicament the Eurozone is in, these leaders recognize ECB’s crucial role in reviving economic growth, keeping in mind that budget discipline remains unchanged in order to ensure the bloc will survive the debt crisis.

French President Francois Hollande called into question the German-driven fiscal austerity, this caused for France and Italy to gain more encouragement for a different, more growth-friendly view of the EU’s strict budget rules. The Mediterranean region gains a benefit of this because the very modest wage increases are pushing...
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