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Wednesday, June 25, 2008

Eurozone Stagnates

The Times reports that the Eurozone is facing the twin nightmares of inflation and stagnant growth, meanwhile the European Central Bank (ECB) signalled earlier this month that Eurozone rates would have to rise further.

How has this situation come about?

1 The world economy is suffering from rising commodity, food and oil prices.

2 The ECB is using a "one size fits" all policy for interest rates, despite the fact that there are clear fault lines between the economies of the North of Europe and South of Europe.

3 The dollar has fallen leaving speculators to pile into the Euro, thus depressing European exports.

The current problems facing the ECB/EU show very clearly why the EU, in its current form with a single currency, will not work.

As the ECB battles to stave off inflationary pressures by raising rates, Southern countries such as Greece, Spain and Italy are in economic freefall. The political fallout from the collapsing economies of the South will destroy the EU in its current form.

Britain has been very wise/lucky not have signed up for the Euro as the currency will collapse.

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