Eurozone: Fiscal Stimulus Meets Deflation

The Eurozone's economy continues to be troubled, despite unprecedented monetary and fiscal stimulus.

In March, industrial output in Germany fell 1.3%, and declined by 0.3% in France. And Italy is grappling with a banking crisis.

Here's an April 11 headline from David Stockman's Contra Corner:

Italy's Banking Crisis Is Back -- Government Desperately Seeking Bailout Fund To Address EUR 370 Billion Bad Loans

Also, Portugal and Spain are seeing a return of problems in public finances.

A May 10 Telegraph article discusses the possibility of a "deflation trap":

The eurozone's short-lived recovery is already losing steam as stimulus fades and deep problems resurface, raising fears of yet another false dawn and a potential deflation trap if there is any external shock over coming months. ...

'The recovery is not gaining any traction. I am really quite worried about another spasm of the debt crisis over the summer, said [an economist] from Markets and Money Advisory. ...

Looser fiscal policy has been too scattered and weak to galvanize lasting investment, and the initial sugar rush is now ebbing.

[A managing director] from Jefferies said the ECB has so far failed to build a buffer against a deflationary shock. 'What catches the eye is that services inflation has been running at just 0.2pc over the last six months. They are really not that far away from deflation.'

You can read the entire article by following the link below: