- 2021-06-10
Europe has become the world's biggest economic problem
After the financial tsunami broke out in the United States in September 2008, the world fell into recession simultaneously. The world’s major economies have been dragged down by the United States and plunged into the worst crisis since the Great Depression in 1929.
With the US and China flooding the market with a large number of banknotes, the economy quickly stabilized under the wealth effect of the stock market (US) and real estate (China). China's growth has shrunk under the huge amount of banknotes, but the extent of the slowdown is not worrying. Coupled with China’s strong fundamentals, China’s recovery after this round of turmoil is better than that of Western rich countries.
Under the strong medicine of QE, the US stock market rose strongly, which brought about the so-called wealth effect, which made the US recovery ahead of other Western economies.
After China's housing market overheated, the government's fierce housing bidding, coupled with weaker Western demand, led to an acceleration of the economic slowdown. This has caused the United States to recover better than China, invisibly making the United States once again the main force of global growth.
Today Europe has become the region with the greatest economic problems in the world, and it may also become the center of the crisis. This is a trend that the world should pay special attention to in the future!
The 2008 financial tsunami was followed by a sovereign debt crisis in the Eurozone. The five European pig countries (Portugal, Ireland, Italy, Greece, and Spain) have successively fallen into sovereign debt crises. Eventually, with the approval of Germany, the European Central Bank (ECB) used EURO BONDS to rescue the five countries in debt trouble. Putting harsh treaties on them, including fiscal austerity (that is, reducing expenditures) to reduce deficits.
This fiscal austerity program seems to make sense at first glance, but it has hurt the eurozone economy. Government spending cuts triggered a knock-on effect, which plunged the five European pig countries into a deep recession, and the unemployment rate rose to 20%.
The Eurozone accounts for a relatively high proportion of domestic economic and trade. Therefore, when many member countries face high unemployment and severe economic contraction, the euro area as a whole is dragged down.
Germany is the growth engine of the Eurozone and has the effect of driving the single currency union. Germany's financial situation is also the strongest, so its name is actually the big brother of the euro zone. Also because Germany has the strongest economic power, Germany also has the greatest influence in decision-making in the euro zone.
Recently, Germany's growth has also fallen to the bottom. This has caused economists to worry that the euro zone may fall into recession for the third time in six years (2008-2014).
There are quite a few problems in the Eurozone. Germany still adheres to the fiscal austerity plan; France and Italy are still very resistant to economic structural reforms; prices have fallen in eight euro zone member states; the overall euro zone inflation rate has fallen to 0.3%, and it is likely to slip into negative numbers next year.
Europe's total economic production accounts for 20% of the world's total, which can be described as a pivotal region. What is worrying is that the region is heading towards economic stagnation and deflation.
If inflation is a phenomenon of economic overheating, then deflation refers to economic overcooling. Deflation in Europe is more terrible than inflation, and every economy does its best to avoid it. Deflation is a series of chain effects such as the overall economic contraction and stagnation, resulting in falling prices, high unemployment, and shrinking people's income.
Optimists began to describe the risk of deflation in Europe as a Japanese-style economic deflation.
Japan's economy fell into deflation after a major storm broke out in the stock and real estate markets in 1990. Japan is described by the world as entering the "lost age". Japan has entered the third "lost age".
However, the situation in Japan and Europe is fundamentally different. Although Japan's deflation has brought some suffering, it has not caused a catastrophic impact on itself or the world. Deflation in Europe certainly brings greater risks. The deflation in Japan in the 1990s was an isolated incident, but today, from China to the United States, everyone is facing a crisis of low inflation. Japan’s population is made up of people of the same race who can endure suffering, but it is difficult for the diverse races of the euro zone to suffer together over the years and go through economic difficulties together. When the sovereign debt burden increases from Italy to Greece, investors begin to retreat, populist leaders will take power, and the euro zone will disintegrate at an accelerated pace.
Deflation in the euro zone will become the world's biggest economic problem!
Eurozone madly printing banknotes
The Eurozone finally decided to use QE to rescue the economy. The European Central Bank (ECB) launched a monthly bond purchase program of 60 billion euros on November 23, 2015, which far exceeded investor expectations.
This is a long-awaited global program designed to revive a recessionary economy and combat terrible deflation.
The recession in the Eurozone triggered a sovereign debt crisis. The five European pig countries (PUGHS, namely Portugal, Ireland, Italy, Greece and Spain) are in a debt default crisis (or bankruptcy). This impacted the stability of the single currency union.
Today the European Central Bank has reached its urgent need and has to launch QE to save the economy. In the face of a serious crisis, can Germany still oppose it?
A large amount of money printing saved the United States. The Eurozone lacks courage and has been slow in action for 6 years, so it is today.
The QE in the Eurozone is to purchase 60 billion euros of bonds every month from the first month of 2015 to September 2016, and is expected to purchase 1 trillion euros of assets. This is a huge money printing operation aimed at stimulating the economy through a large amount of money flowing into the market.
But experts warned that the European Central Bank's crazy money printing bank may trigger a global war of goods and printing. At the same time, because the euro will further depreciate, the Federal Reserve Board may be forced to postpone the original interest rate hike schedule. The reason is very simple. In the case of a huge depreciation of the euro, the US dollar is intended to appreciate sharply. If interest rates are raised again, the upward trend may be even sharper. The United States certainly does not want the dollar to rise too far, because it will impact US exports.