globalEDGE Blog: Is The Eurozone Crisis Over?

Is The Eurozone Crisis Over?

International economists are all asking the same question: Is the Eurozone's financial crisis over? For a region of the world that has borne some of the worst repercussions of the Great Recession, it could potentially be said now that the biggest brunt of the crisis is over, and the countries of the Eurozone are now on their (uneasy) way to recovery. However, this is not a confident prediction. Several factors, such as worryingly low inflation and high unemployment, are still present in these economies, showing that more problems may still be nigh. At this point it may be dangerous to assume the Eurozone has seen the last of its economic woes. Here is a closer look.

As of late, countries Eurozone have been showing many promising economic signs. At the beginning of quarter 2 of this year, business activity in the Eurozone began to see its fastest rate of growth in over three years. This business growth has been observed in Germany for a while, but now businesses in countries such as Ireland and Spain are also seeing their strongest growth rates in almost a decade. Other countries are also seeing positive results. The services industry has grown in France and Italy for the first time since 2011. Greece, the location where the crisis started, has finally been able to sell some of its debt. Portugal has been able to come out of government bailout support. In the midst of these individual victories, the Eurozone can be accurately said to be facing economic recovery. Does this mean that all of its troubles are over? Unfortunately not, according to the analysis of several economic indicators.

Despite the recent spike in business performance, overall economic growth is well below a healthy level for the Eurozone. Unemployment, a consistent problem throughout the economic crisis, remains increasingly high in several countries, especially in the younger members of the labor force. This is largely due to Europe's low availability of jobs, which is leading to the fall of consumer prices, a process commonly known as deflation. Low inflation has been a major cause of concern for the Eurozone throughout its crisis, and pressure is heaping on the European Central Bank to act upon the issue. One solution the ECB has come up with is cutting interest rates, beginning in June. This measure, however, may not be enough to increase inflation rates to a necessary level. If the euro remains too strong, prices will only continue to fall, especially in imports and exports, leading to problems with international trade, the labor market, and debt.

Overall, while the Eurozone has seen many signs of economic promise lately, it is rather risky to say with certainty that its crisis is over. Thus, the Eurozone should tread carefully in future economic reforms if it wishes to keep up its recovery.

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