Marketing Communications A European Perspective / Marketing communications

Marketing Communications A European Perspective

A European Perspective on the Future of the Euro AreaA few weeks ago I wrote on this same blog that the main economic problem facing Europe was Immigration. However, I do not want to leave the readers with the impression that the current financial crisis is any less important and critical. Thus, I will now focus on that other problem, as if the first problem was not enough. To start, note that the euro area GDP is 3 percent lower than it was in early 2008; its average unemployment rate is above 12 % – 16 percent in Portugal, 17 percent in Cyprus, and 27 percent in Spain and Greece.

What are the problems?

  1. There are too many countries – 18 euro member states – that are too diverse.
  2. The monetary policy of the ECB is too restrictive, i.e. it is too concerned about inflation when there is deflation.
  3. Labor mobility in Europe is limited as unemployed Europeans are reluctant to move to faster growing countries.
  4. There are no fiscal transfers from a fast growing region to a depressed region. This tends to exacerbate recessions as the national authorities are forced to follow pro-cyclical (austerity) policies causing economic growth to fall further and thus their budget deficits and public debts to continue increasing.

Example #1: When Ireland joined the monetary union in 1999, it was forced to lower its interest rate from 6.75% to 3.5% while it was experiencing a housing boom; interestingly, the lower interest rates were beneficial to Germany whose economy at the time was not growing as fast as Ireland. Thus, the Irish boom was further stimulated by the one-size-fits all monetary policy that was more appropriate for Germany than for Ireland.

Catholic Economic TeachingExample #2: Prior to its economic collapse, Greece was experiencing massive capital inflows from the Northern core European countries, including Germany. This was so because investors were looking for higher returns in Greece than in their own countries while the exchange rate risk was eliminated by the creation of the euro. Those capital inflows caused wages and prices to increase in Greece at a much faster rate than in Germany making Greek goods uncompetitive in world markets. The result was a large current account deficit financed by German and other European investors. When these capital inflows stopped or were reversed following the bursting of the housing bubble, Greek borrowers, including banks and government, were unable to service their debt. This led to the collapse of the economy and the further increase in the government debt.

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"The "mass affluent" pay $3 for coffee at Starbucks, buy $27 Isaac Mizrahi pumps at Target and stock their kitchens with imported Italian dinnerware from Williams-Sonoma and $5,700 Sub-Zero refrigerators.
"This phenomenon is best observed by going into Costco. It's piled high to the ceiling with stuff that ... were luxuries the day before yesterday," said James Twitchell, author of Living It Up: America's Love Affair with Luxury.
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Two Seattle-area companies are among the new luxury leaders: Issaquah, Wash

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