Eurozone inflation has accelerated to 1.4% in May from 1.2%, while unemployment continues its relentless upward ascent, hitting 12.2% in April. The Eurozone’s economic woes are piling up. Low inflation and record high unemployment show in stark relief that Eurozone monetary and fiscal policy is far too tight. Recession still holds sway. There will be no relief until the ECB eases monetary policy dramatically and Eurozone governments steer fiscal policy resolutely away from austerity. Recession, low inflation, domestic credit contraction and high unemployment underline that the Eurozone is heading for a catastrophe unless the authorities act quickly.
The ECB needs to get rates down to zero and embark on a massive programme of quantitative easing as soon as possible. The Eurozone needs to be flooded with easy money and a surfeit of cheap credit. Austerity needs to be ditched as soon as possible and fiscal policy needs to be switched into counter-cyclical, pro-growth stimulus. A return to Keynesian economic regeneration is needed right now. German opposition has to be ignored. Without a massive sea-change in policy soon, the Eurozone risks being condemned to years of bouncing along the bottom of recession. A plunge into depression could be waiting in the wings, putting the EU experiment at deep risk.
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