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Europe’s Surplus of Stagnation

LONDON – While the rest of the world recovers from the Great Recession of 2008-2009, Europe is stagnating. Eurozone growth is expected to be 1.7% next year. What can be done about it?

One solution is a weaker euro. Earlier this month, the chief executive of Airbus called for drastic action to reduce the value of the euro against the dollar by about 10%, from a “crazy” $1.35 to between $1.20 and $1.25. The European Central Bank cut its deposit rates from 0 to -0.1%, effectively charging banks to keep money at the Central Bank. But these measures had little effect on foreign-exchange markets.

That is mainly because nothing is being done to boost aggregate demand. The United Kingdom, the United States, and Japan all increased their money supply to revive their economies, with currency devaluation becoming an essential part of the recovery mechanism. ECB President Mario Draghi often hints at quantitative easing – last month, he repeated that, “if required, we will act swiftly with further monetary policy easing” – but his perpetual lack of commitment resembles that of Mark Carney, the governor of the Bank of England, whom one former UK government minister recently compared to an “unreliable boyfriend.”

But the ECB’s inaction is not wholly responsible for the appreciation of the euro’s exchange rate. The pattern of current-account imbalances across the eurozone also plays a large role.