Just a short post, inspired by this article by Hamish McRae in Independent – Would it Matter if Greece left the Euro? So often governments have fought ‘tough and nail’ to stay in an exchange rate system. But, when they finally leave – it is the best thing they ever did, and you’re left thinking …
Readers Question: Is there an inbuilt deflationary bias in the Eurozone? Note: I originally wrote this post in 2010. Unfortunately, every year there is a reason to update the post and suggest the deflationary bias in the Eurozone keeps getting stronger. Deflationary bias means that there is a tendency for economic policy to promote lower …
Why didn’t the UK Join the Euro? Joining the Euro would give the UK various advantages: predictability of exchange rates with Europe Easier for consumers to compare prices (price transparency) Lower transaction costs Encourages investment because of greater stability in trade. However, despite these potential benefits the UK decided not to join and shows no …
Bank of England base interest rates are currently 0.5%. Economists are divided about when interest rates will rise. Some point to the evidence of a strong economic recovery to suggest interest rates could rise by mid 2015. Others argue that the strong global deflationary pressures mean that UK inflation is likely to stay very low …
Readers Questions: Could you not also argue not that the Euro is a failure but that it’s members/ECB are pursuing the wrong policy? Predictions of the death of the Euro seem to have been much exaggerated & surely Europe has the potential to be a world economic superpower to rival the US or China? It …
The Euro is the single European countries adopted by 18 out of 28 EU countries. The UK has not joined. The Euro involves: Common currency Common monetary policy – Eurozone interest rates set by the ECB in Brussels. Some fiscal rules, e.g. The Fiscal Compact (2012) limiting the amount of government borrowing (a balanced budget …
Readers Question: Europe is in grip of real deflation and low growth period but then why Euro is on a rise In recent months, European inflation has fallen to 0.5%. In several countries within the Eurozone, countries are now experiencing actual deflation. In the past year, the Euro has appreciated against a basket of currencies, …
A look at the effects of how an over-valuation of the exchange rate can cause deflation. Readers Question: does an appreciation in the exchange rate cause deflation? An appreciation does tend to reduce inflationary pressures. This is because after after an appreciation in the exchange rate: Price of imports will fall, causing a fall in …