Eurozone on the mend?
ECB chief Mario Draghi insists the worst of the eurozone debt crisis is over despite remaining risks.
Key indicators such as inflation and budget deficit inspire optimism. More relief for some Europeans is Draghi’s statement that the financial situation in Europe is definitely better than in the US.
Another factor which points at Europe’s more or less stable financial position is returning investor confidence and no need of supportive bond purchases by the ECB. But experts keep questioning if Europe is in the state of balanced health or it’s just a temporary remission before it has to face another bail out.
Draghi defended the recent move to make an infusion of more than one trillion Euros ($1.3 trillion) into Europe's banking system. Some however warned it could fuel inflation in the single currency region and complicate the situation.
“Of course there are risks and side effects if you use such a powerful medication as the one trillion Euros were"- Draghi responds. Given the current state of the global economy, investors see the purchase of US or European company shares as risky.
Investors are searching for stability amid the current financial turmoil and a lot of liquidity on the markets. This explains the recent growth of investor interest towards BRICS countries, and Russia in particular.
Draghi’s cautious assurances of stability in the region though do not bring relief to the U.S. which plans to continue protecting the country’s economy against the euro zone crisis despite the recent easing of financial tension. The Fed Chairman Ben Bernanke said the current instability in Europe which has been prompted by a dramatic increase in state debt has a negative impact on the US economy.
Moreover weak economic activity across the euro zone this month has almost certainly pushed the 17-country bloc into a recession, though a mild one, according to a closely watched survey. The euro zone purchasing managers’ indices showed private sector economic activity fell strongly back into contraction territory this month. The unexpected drop undermines hopes of a steady recovery.
German manufacturing – which largely powers euro zone growth – saw a particularly sharp decline. However, Germany’s weak performance in March contrasted with the more optimistic signals by the IFO German business confidence survey – which has pointed to a continuing rebound. The weaker data also contrasted with the cautiously optimistic tone struck by Mario Draghi.
While the EU countries, account for one fifth of the US exports, the demand for American-made goods in Europe has been on the decrease over the past two years. This in turn has led to lower sales of US products in other countries. The euro zone crisis is thus affecting the whole of the global market.
However, experts agree that, whatever happens, Europe so far remains a significant source of capital with plenty of internal resources.
The US Federal Reserve said it will protect the country’s financial institutions, businesses and citizens. In the meantime, Ben Bernanke called on European politicians to strengthen the EU banking system to stop the debt crisis from growing out of proportion.