Euro zone remains the problem child of the global economy

Euro zone remains the problem child of the global economy

The world’s leading economic powers are at odds over the right medicine for the eurozone’s weak economy. While the germans insist on deficit and debt reduction and warn against exaggerated growth expectations, other blocs call for more reforms to create jobs and increase competitiveness.

"Stronger demand in europe is important for global growth," u.S. Treasury secretary jack lew said at the spring meeting of the international monetary fund (imf) and the world bank in washington over the weekend.

The american buried the debate of the europeans to boost their economy "through an appropriate mix of economic tools. Strong countries in particular should invest in growth to cushion the austerity cuts in crisis-hit countries. Growth still too weak, says IMF steering committee paper. "We must act decisively to restore the resilience of the world economy."

While the global economy is expected to grow by 3.3 percent this year according to IMF calculations, the economy in the euro zone will shrink by 0.3 percent. Next year, too, growth is expected to be rather weak by comparison, at 1.1 percent.

IMF chief christine lagarde warned that europe is increasingly falling behind the u.S. And emerging markets. This "three-speed recovery" is not good for the development of the world economy.

Finance minister wolfgang schauble (CDU) made it clear that europe would not be a strong economic engine in the coming years. It would be completely unrealistic to expect rough growth rates, he said in washington.

Bundesbank president jens weidmann said the euro debt crisis would take a decade rather than a year to resolve. More debt will not allow us to return to pre-crisis growth rates. High growth rates of emerging markets are not the mabstab, he says.

Schauble pointed out that while there was agreement to continue reducing deficits. But it will take some time for the globally leading economic powers (G20) to set new targets.

Meanwhile, the IMF wants to investigate possible negative consequences of the extremely loose monetary policy. It must be considered how central banks could find an inconvenient way to slow down the money press again, lagarde said.

Following the recent massive increase in liquidity by the japanese central bank, there are growing concerns that inflation, speculative bubbles, unstable commodity prices and a devaluation race between different currencies could be the result. According to weidmann, the risks posed by the "ultra-expansive" monetary policy increase as time goes on.

Like the G20 group of economic powers, the IMF calls for decisive steps toward banking union in europe. Euro group head jeroen dijsselbloem does not expect any major delays as a result of the dispute over possible changes to the eu treaties. "We can actually make very, very good progress with the essential elements of the banking union," he said. At the same time, it was debated whether the european treaties had to be changed for the planned resolution mechanism for ailing banks. In schauble’s view, a resolution authority to close institutions is only possible if the european treaties have been changed.

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