He added that the ECB’s failure to reach its 2 per cent inflation target had resulted in a ‘musical chairs’ problem, where there is not enough money circulating in the Eurozone to match people’s wage demands, in turn resulting in ‘unprecedentedly’ high unemployment in many Eurozone countries.
‘Once, economists warned that Europe faced a Japan-style “lost decade” of unemployment and economic stagnation. That now seems like wishful thinking: because the ECB has kept money so tight and so much wealth has been lost, the Eurozone is likely to be in extremely bad shape for many years to come,’ Bowman said.
‘If the ECB was really willing to do “whatever it takes” to reach its inflation target, including quantitative easing, it could bring the Eurozone back to growth. The eurozone has needed easier money for years now; now that Germany does too, it may finally see it.’
Comments from the Research Director of the Adam Smith Institute, Sam Bowman, regarding Germany’s shock 0.2% contraction were featured in The Daily Mail:
Inflation in the eurozone dropped back to 0.6 per cent in July from 0.7 per cent in June, facing the ECB with the spectre of deflation and prompting fresh calls for another round of quantitative easing.
Sam Bowman, research director of the Adam Smith Institute, said Germany’s contraction might be a wake-up call to the ECB that it is driving Europe’s economies into the ground.
‘Tight money is almost entirely to blame for the Eurozone’s current problems: as the rest of the world has slowly recovered from the Great Recession with relatively accommodative monetary policy, Europe has sunk back into deep recession,’ he said.
Read the full article here.