If you follow my content around the web, you know that I’ve been tracking the euro zone closely since late 2013. After being hired to write about economic conditions in Europe, I started to grow more and more personal interest in the topic. After all, the euro is one of the most complex currencies around. Anyway, when I first started looking into Europe’s economy, it seemed like they were finally making a recovery from the depths of financial recession. Unfortunately, several months in and everything seemed to start heading the wrong direction. The fall in economic activity has continued…but wait, has it? Recent data from Europe shows that the 18 member currency zone may be pulling its self off of the brink of recession.
Leading Up To Europe’s Most Recent Economic Crisis
What led to the crisis in the first place? In early 2013, everything seemed great. Germany was the steam engine that powered the euro zone and economic recovery was all but guaranteed. Unfortunately, this didn’t last long. In Mid 2013, Russia started to move in on Ukraine owned land called the Crimea Peninsula. This lead to disputes between Russia and the West.
Soon following the invasion, the United States, Europe, and other western nations started to place sanctions on Russia. As Russia’s activity in Ukraine continued, sanctions continued to become more and more strict. Because Russia is a major trading partner with Europe, as sanctions continued to become more and more strict, consumer, investor, and business sentiment started to fall throughout Europe. As a result, what seemed like a recovery quickly become an economic tragedy; eventually forcing the ECB to reduce interest rates further and create a plan for quantitative easing.
New Data Shows That Europe May Actually Be Making A Recovery
Just aver the ECB announced their plan for quantitative easing, new data has emerged suggesting that Europe’s economy isn’t doing as bad as many thought. As a matter of fact, economy growth throughout the 18 member euro zone increased by 0.3% quarter over quarter in Q4 of 2014. Economists only predicted growth of 0.2%. Overall, Europe’s GDP grew by 1.4% in the year 2014.
Was Quantitative Easing Really Necessary?
The positive data that has surfaced suggests that consumers within the euro zone are starting to become more comfortable with spending once again. This brings two question to light. First off, “Will QE even work in Europe?”, and “Was quantitative easing really necessary?” Personally, I have mixed feelings as to whether or not quantitative easing will actually work in Europe. Here’s what I think…
Will QE Work In Europe?
I really don’t think so. When it comes to quantitative easing in the euro zone, there are two major hindrances to the effectiveness of the plan.
- Governments Need To Follow Through – The euro zone is a currency zone with 18 different countries. This means that unlike the Federal Reserve who only has one government to deal with, the ECB has to deal with 18 different governments; many of whom are opposed to the QE concept. Therefore, getting the governments to work in tandem in order to see QE goals to come to fruition may be nearly impossible.
- What Works For You May Not Work For Me – As mentioned above, Europe is a very interesting economy. That’s because instead of the currency being used by only one country, it’s used by 18. The problem here is that while some economies might be doing well, for the currency to do well as a whole, all of the countries in the zone must contribute. So, while some countries may need quantitative easing, others really don’t! Putting stimulus in play where it’s not needed could be very dangerous for regional economies in the euro zone. The bottom line is that what works for one area may not work for another; which is why I believe the euro may be a broken currency.
Was Quantitative Easing Even Necessary?
That’s a very hard question to answer. As mentioned above, there are 18 countries in the euro zone. While the fourth quarter growth was better than expected, if you break down the numbers, that growth is largely due to Germany and Spain and has very little to do with the other 16 countries involved in the currency. So, are there countries that could benefit from QE in the euro zone? Of course there are, but another question that needs to be asked is, are there members of the currency zone that may not benefit from QE?
What Do You Think?
Do you think Europe will continue on a solid growth path? What are your thoughts on quantitative easing in the 18 member currency zone? Let me know in the comments below!