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Eurozone Deflation Danger - Assignment Example

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The paper “Eurozone Deflation Danger” looks at the diverse challenges facing the global economy. Continental Europe poses the biggest threats to the growth of the world economy. Based on the contribution that Germany makes to the Eurozone, this means that the euro area will head towards its third recession…
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Eurozone Deflation Danger
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Download file to see previous pages In the European region, more than eight countries are witnessing falling prices. The overall rate of inflation has gone down considerably to about 0.3 percent and will deteriorate further in the coming years. The Eurozone comprises about one-fifth of the global output. Thus, with the rate at which the region is witnessing deflation and stagnation, it is likely that this effect will prevail in different parts of the world, leading to global stagnation in the coming years (Los Angeles Times, 2015).
Despite the effect being felt in Europe, several optimists both outside and inside Europe refer to the example of Japan. During the late 1990s, Japan witnessed a major deflation, which has unpleasant effects. This deflation did not have a major influence on the country or the world. However, based on the events taking place in the Eurozone, it is apparent that more dangers will emerge. Unlike in the case of Japan, the case of the Eurozone is not secluded. From America to China, the rate of inflation is considerably low and falling. Unlike Japan’s case, whose society is enduring and homogenous, it is not possible for the euro area to cope with this issue after witnessing years of falling prices and economic sclerosis. As burdens of debt exist from Greece to Italy, investors will panic, creating room for mainstream politicians to dominate the region. As a result, the euro will head towards failure sooner (Eichengreen, 2014).
In the opinion of many Europeans, particularly the Germans, they have grown up knowing that inflation creates devastating effects on an economy. However, irrespective of this, the emerging deflation in the region may still lead to overwhelming effects. In case organizations and individuals in the region anticipate that prices will fall, the level of spending will go down while demand falls. The number of loan defaults will also rise significantly. This exact case prevailed during the Great Depression when Germany faced the most severe consequences in the 1930s (Economist, 2014). ...Download file to see next pagesRead More
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