Reports of the Survival of the Eurozone May Have Been Greatly Exaggerated !

• Reports of the survival of the eurozone may have been greatly exaggerated! 
  by Roger Bootle, http://www.telegraph.co.uk/
  Last week’s surprise interest rate cut by the European Central Bank (ECB) was   largely a response to the looming danger of deflation in the Eurozone.
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  Just when you thought it was safe to go back into the water… Last week’s surprise   interest rate cut by the European Central Bank (ECB) may have been   taken as good news by the markets, but it was largely a response to the   looming danger of deflation in the eurozone. And that is not good news at   all.
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  It is a severe problem of economic forecasting that if you manage to identify   a major force that is going to have significant effects, you are rarely able   to see quite when these will occur. You can give up, retire or die before   the forecast events finally come to pass.
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  The long-running crisis of the euro is a case in point. Like Mark Twain’s   death, forecasts of the euro’s demise have proved premature. Yet at the   heart of the simmering crisis lie two debilitating problems with the   potential for a devastating interaction. The first is a loss of   competitiveness by the peripheral countries, that has left them with   depressed levels of GDP and high rates of unemployment. The second is   appallingly high government debt.
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  The response of the eurozone to the debt problem has been to enforce austerity   in the form of cuts in government spending and increases in taxes. That has   been successful in reducing the size of the deficits in the peripheral   countries. The policy for regaining competitiveness has focused on so-called   internal devaluation, whereby the peripheral countries force their inflation   rates to low levels. Deflation – that is to say, falling prices – if it   occurs, would simply be a continuation of this policy. The faster prices   fall, the sooner the affected countries will return to full competitiveness.
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  At first sight, it seems as though these two policies are consistent with each   other. After all, the austerity drive helps price and wage increases to   moderate because it depresses aggregate demand and releases resources,   including labour.
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