Are we still in the midst of a crisis?

The answer is yes…or at least that was the answer from Mario Draghi at the press conference after the September 7 monetary policy meeting, thereby indicating the importance of pursuing monetary accommodation in order to keep on supporting economic activity, despite the recent uptick in growth. However, the economy is failing to get back on the road to higher inflation and this means there is still an imbalance.

More broadly speaking, I think that the world economy is still in crisis, especially in the west, if we define a crisis as a transition period between two stable trends.
I don’t mean a financial crisis as triggered by excessive debt used to finance the acquisition of property: financial crises like the one in 2007/2008 are as old as time itself.
Beyond this financial aspect, we can identify two major sources of imbalance, which persist and keep the global economy stuck in a crisis. Continue reading

On Eurozone Vulnerability 

This article written Benedicta Marzinotto, on Project Syndicate, explains what are the fragilities of the Euro Area despite all the structural reforms that has been accomplished. In case of a crisis, high indebted countries would face again high difficulties to maintain their stability. 

Despite recently experiencing an overall economic uptick, the eurozone remains fragile and uninsured against the risk of another crisis. And a major reason is that it is still vulnerable to asymmetric boom-and-bust cycles.
Simply put, while all eurozone members can benefit during good times, some suffer far more than others during busts. This means that whenever the next crisis hits, safety-conscious investors will flee from fiscally weak countries toward fiscally strong ones that have a proven track record of generating economic growth…..

Read the article here 

The Two crisis in the Euro Area

The chart below shows the two shocks that have hurt the Euro Area since 2007.

In red is the period following the Lehman bankruptcy. For the Euro area it was a strong exogenous shock on its economic activity and on its unemployment rate. From October 2008 to April 2010 unemployment rate was up by 2.4% from 7.8% to 10.2%. The impact was long lasting but all the plans that were put in place in 2009 by governments were able at the end to support activity and to stabilize the Euro Area unemployment rate. Continue reading