Evidence of the United States quick recovery is growing stronger. After healthy jobs and factory data, the Dow Jones Industrial Average index has been rising steadily, showing record highs for the past few weeks.
Though global markets would be celebrating the return of economic prosperity to the superpower nation, the eurozone has cause for worry. Growth has almost stagnated in the 17-nation bloc, once again raising the dilemma of whether austerity should prevail for bringing the fiscal house in order, or whether an impetus to growth be provided through an eased monetary policy.
Economists and analysts seem to be in favour of the latter. In a recent interview with CNN, American economist Nouriel Roubini recommended that the European Central Bank (ECB) should lower rates even further in order to aggravate the recession. Last week, IMF managing director Christian Lagarde also said that the ECB had room to cut rates further.
It should be noted that the interest rates in the eurozone are already quite low at a paltry 0.75 percent, and last week, the bank decided to keep them steady, despite predictions that the 17-nation bloc will contract more than what had been anticipated-by about 0.5 percent instead of the forecasted 0.3 percent this year.
Aside from a rate cut, Roubini also believes a weakening of the euro could help the ailing economy. "The euro should be 10, 20 or even 30 percent weaker to restore the competitiveness of the [eurozone] periphery," CNN quoted Roubini.
With the US on a recovery track, there is even more urgency for the eurozone to join the bandwagon of recovering economies. A weaker euro will definitely be of help in restoring competitiveness. At the same time, general consensus suggests the ECB ought to seriously consider lowering its rate to help the weak eurozone economy.
Consequences of not doing so may be not only economic, but also political as manifested in the Italian protest vote against austerity and resentment amongst Germans about the cost of bailouts. Its time for the ECB to act sooner rather than later.
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