The fresh downturn has worsened tensions between European leaders and Chancellor Angela Merkel of Germany. Ms. Merkel continues to stand by an austerity program that she considers essential to financial stability, -- but that many critics now say is only deepening Europe’s woes and leaving it at risk of losing a generation of growth. The situation has placed additional pressure on Mario Draghi, president of the European Central Bank, to act more aggressively, much as the Federal Reserve has in the United States, to stimulate the economy through bond purchases -- In a speech last week at a Federal Reserve conference in Jackson Hole, Wyo., Mr. Draghi for the first time challenged the austerity consensus, suggesting that European governments might need to relax their budgets in the short run to give their economies a kick -- Action by the European Central Bank, which meets in Frankfurt next week, has become more urgent in the face of signs of another potential menace: DEFLATION, a downward spiral in prices and wages that could further crimp Europe’s recovery prospects. On Friday, Europe’s statistical agency reported that inflation declined again in August to its lowest level since 2009. “THIS IS A MAJOR RED LIGHT” for Europe, said Jean-Paul Fitoussi, a professor of economics at the Institut d’Études Politiques de Paris. “WE NEED to change the direction of policy to avoid a situation with potentially worrisome consequences for society and politics”.
Posted on: Mon, 01 Sep 2014 18:25:13 +0000
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