Still Tough for Europe

Europe expects to raise its economy due to the lowering euros and the slumped oil price. Because of the disastrous crisis in 2008 globally, many European countries were immersed in a big troublesome. Greek, Spain, Italy, Portugal and so on, were suffered from essential pressure of debt. People lost credibility of their governments, which endured budget deficit badly. The oil price dropped tremendously from the end of last year in an unbelievable speed. However, Europe seems can gain something unexpectedly from this kind of circumstance. “‘Europe’s economic outlook is a little brighter today than when we presented our last forecasts,’ Mr. Moscovici said. ‘The fall in oil price and the cheaper euro are providing a welcome shot in the arm for the EU economy.’The commission said lower oil prices should boost corporate profits and household incomes in Europe, which is a large net importer of oil. A weaker euro should boost European exports.”(http://www.wsj.com/articles/eu-raises-eurozone-growth-forecasts-1423131184)

 

Without comprehensive learnings, those inferences are seemingly rational. However, if we can view this issue in a more profound way, there are many flaws in it. Admittedly, if euros goes down, then European exports will be more competitive since the relatively cheaper price. Increasing price will hopefully fueled European economy a lot. Wait! We should not only consider about exports, which is one of the most important part of economics. Let’s analyze the investment. If euros keep falling, then nobody will want to get it but change it to other kinds of currency. Then no euros will be saved in the bank thus no investment can be made. Moreover, foreign investors will retrieve their money in euro zones. This will make a significant hurt for European countries.

Falling oil price looks like a perfect chance for European countries to surge their industry and manufacture. As the price of oil goes down, the expenditure of sources will be cheaper and cheaper. But in another point of view, when oil price keeps slumping, more and more investors and entrepreneurs are readily hoping invest more and produce more in the future since the price of oil is expected lower further.

 

Furthermore, the inner relationships between European countries are not so well. “The ECB announced on Wednesday evening that it would no longer accept Greek government bonds as collateral for its loans to banks in the country. While freshly recapitalized—partly with bailout money—Greek banks still rely on the central bank for short-term loans that keep them operating from day to day. That reliance now threatens to reduce the new Greek government’s ability to bargain with its euro zone creditors.”(http://www.wsj.com/articles/ecbs-squeeze-hampers-greeces-bid-for-debt-relief-1423171743) Every country want to keep more money in their own pocket. Though everyone knows that increasing liquidity of money can produce more money, nobody want to take the risk of being the victim of giving free-ride to others. Therefore, do not put much reliance on falling euros and oil price to revive Europe.

Leave a Reply