While economic health is certainly improving in the eurozone, progress continues to be slow. According to Reuters, the projected 1 percent improvement expected this year won’t be enough to drive down unemployment, a major economic factor for countries struggling to improve their inflation situation.
“We do have a recovery, of that we can be confident. But the task is to nurture it, because it’s not strong enough to make a significant impact on unemployment, which is the primary source of disinflation,” Julian Callow, the chief international economist at Barclays, told The Wall Street Journal.
Early in December, the European Central Bank said it would step in to help if inflation continued to remain low in the eurozone. Still, it may be more hesitant to meddle than has been indicated, or so economists told the Journal, saying that printing money or changing interest rates could have the propensity to displease a more stable Germany, a country that historically hasn’t been a fan of bank intervention.
Germany has been doing rather well economically when compared to others in the eurozone. The country’s growth has been healthy and its unemployment rate has shown a decrease. Even so, Chancellor Angela Merkel and other German politicians are somewhat hesitant to aid surrounding countries and are focusing on keeping Germany stable.
“There’s a lot of work to do so that Germany will remain strong in the future as well,” Merkel said at the end of last month. Countries like Greece and Spain — the latter of which is reportedly on the edge of deflation — may lead to stagnation in the eurozone at the very least, reports The Wall Street Journal.
“The social and political effects of stagnation are unpredictable, but we should take them seriously. The risks are not in financial markets but in societies now,” said Paul De Grauwe, a professor of political economy, to the Journal.