Now What Do We Do?

The raft of data coming out of the euro area in recent weeks has been more and more mediocre and has erased all doubts: the strategy for extricating the economy from the crisis in the past few years has been a failure. None of the mechanisms born of resulting from decisions made by European leaders have delivered results or are about to:
-the structural policies aimed at improving competitiveness have failed, because global trade is tanking
-as proof: Germany’s export outlook is sputtering and the ability of the euro area’s biggest economy to act as the region’s growth driver (i.e. its “appointed” role) is going up in smoke;
-fiscal austerity’s only effect, under such conditions, is to fuel deflationary pressures and are counter-productive in controlling public debt levels.

These failures hardly come as a surprise. Like many of our peers, we have been decrying these shortcomings but did we really need to spell them out before hoping to make a convincing enough argument to effect the urgent change in the direction of European economic policy? With the situation becoming increasingly dire, where should, at present, our fears and hopes lie?

The Euro Area on its Own—With Some Heavy Lifting to be Done

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The recession in the euro area is almost officially over, but that doesn’t mean the economy is back to normal—far from it. As long as no structural growth policies are enacted, the outlook for the EMU will remain grim and member states will have as much trouble meeting their fiscal targets as before. This leaves just two options open. Either Europe reverts to austerity—in which case the recovery will collapse and we’ll be in for another slump with highly unpredictable consequences—or the ECB completely overhauls its policy stance. The latest developments in the international arena make this second option increasingly likely.