The Euro was established and came into practice with the sole aim of giving the Dollar a tough time as the universal currency. But, as speculated, it hasn’t helped the European economy much; rather, according to surreys and news reports, growth rate of many European nations was just a meager 1.4% in the last fiscal year. In fact, many countries in the European Union are facing recession under inflationary pressures as well as pressures of rising food and oil prices worldwide.
Spain, Germany and Britain are well on their course to recession, which happens when the growth falls for two consecutive years, this might happen to other large economies of the European Union as well, considering the catastrophic effect that mortgage and sub-prime crisis has had on the developed economies of the European Union.
Speaking of Germany, both the customers and the sellers have kept a tight control over their purses- a situation known as “purse string tightening”. On the bigger prospective, Germany still has a robust economy, good employment rate and strong exports, even with a small growth rate of 1.8%. Netherlands and Poland, though much smaller than Germany and Britain in terms of economy, have been able to stand the test of these financial blows rather well and are growing at rates far better than the average Euro zone averages.
Inflation has much to do with the rising financial crisis, which is attributed to rising oil and food prices. Jaun Claude Trichet, President of the European Central Bank further warns that inflation is not going to cool down in the near future. He remarks that inflation may come down slightly in 2009, allowing the economy to stabilize a bit, but the markets and investors, and therefore the whole economy will be watchful and volatile for a longer than expected period.
The only option seen by most economists under the present prospective is to cut the interest rates to give the economy a boost, but Mr. Trichet dismissed this proposal because this would lead to a further aggravation of inflation according to him, and the Union Bank’s main aim is to control and stabilize prices rather than push the growth as of right now.