Measures to Enhance Euro Zone Recovery
The European Union together with the euro area have responded to the euro crisis by coming up with measures that will help improve financial stability, improve economic governance and support employment and growth. The financial and global economic crisis that started in 2008 has left a profound impact on the EU as well as its member states’ economies.
The public debt crisis that came in the wake of the crisis exposed the fact that there was structural weakness in the European economies like unsustainable levels of private or public debate and declining competiveness. In addition to this, it revealed systematic shortcomings in the monetary and economic union itself.
In response to the crisis, European institutions and governments took a range of measures that were aimed at safeguarding the financial stability of the Euro and strengthening institutional architecture f the EU and the euro area as a whole. They came to an agreement about comprehensive economic governance reform for purposes of avoiding the occurrence of similar shocks in the future.
Positive fragmentation and sentiment
During the first half of 2014, there are three economic developments that have taken place in the euro zone.
- Acute phase of Euro crisis has come to an end officially. Countries that are worst affected like Portugal and Greece have found their way to the capital markets and spread on bonds of the crisis in these countries declined even further. Portugal also followed the Ireland example by leaving the program for bailout. The euro zone has continued to grow as a whole while the sentiment indicator is used as the yardstick for economic expectations.
Several factors are driving the recovery of the euro zone such as the introduction of accommodative monetary policies by the ECB June aimed at addressing the crisis. The goals of ECB are those of countering deflationary tendencies and supporting lending to the real economy. The ECB package includes the following:
- Low key interest rates
- Offers for cheap bank loans on the terms that lending to corporate is increased.
- Imposing of a negative interest rate which should be on bank deposits that are made overnight by the ECB
All these factors add up to a range of monetary stimulus programs aimed to aid in recovery of the euro zone. The ECB has also made a commitment to introduce some additional measures which might be unconventional if it sees any risk that might lead to a season of low inflation.
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