Friday, August 15, 2008

Europe succumbing to global economic woes (IHT)

Starting today, I am beginning an attempt to regularly post links to articles that I find interesting. There will be no pattern or sequence or regularity to expect. The rule is: if I happen to see it and I find it worthwhile posting (and I have the time :-) ) I will go ahead and post the link, perhaps accompanied with a small 'something'.

Hope it proves useful for (my) kids doing IB Economics!

The first one is from the International Herald Tribune. It is about the slowdown of the European economy: "...The economy of the 15-nation euro area contracted 0.2 percent in the three months ended June 30, data released Thursday showed..."

It is interesting to note the stance of the ECB:

But the European Central Bank, which has bucked the trend of other major central banks by raising interest rates in July, appears determined to stick to its mandate to tame inflation, arguing that higher inflation is still a greater threat than lower growth.

Is it worth controlling inflation? What could be the costs of not doing so? Who gains and who loses from a tight monetary policy stance? Taming inflation, but at what cost? Is there a difference between the short term and the long term? In this case, what does the price of oil got to do with it? Why may credibility in policymaking be important? Is there something in this article pointing to its role? What is the role and importance of inflationary expectations?

Note also the distinction made in the article between a 'recession' and stagnation:
The data Thursday from the EU statistical agency Eurostat set off fevered head-scratching about whether Europe can formally dodge a recession, often defined as two successive quarters of shrinking economic activity. The consensus seemed to be that it still might - but just barely.
'We can probably scrape by and avoid another negative quarter,' said Julian Callow, chief Europe economist at Barclays Capital. 'But we are in for stagnation here.'

Anyway, any IB economics student interested can find the article here

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