The spectre of Eurozone deflation -

Abstract

The Eurozone’s reaction to the economic crisis beginning in late 2008 involved both efforts to mitigate the arbitrarily destructive effects of markets and vigorous pursuit of policies aimed at austerity and deflation. In this paper I mention the major aspects of deflation in addition to the causes of the price level drop in the Eurozone and the solution that the ECB has adopted. The purpose of my research is to answer the question whether quantitative easing is the appropriate policy the ECB has undertaken in addition to its ability to induce growth and inflation. Accordingly, it is time for Europe to acknowledge the importance of fiscal policies in a monetary union. Unlike the effect of the quantitative easing on economic variables, consumption, investment and exports have a strong long run relationship with the government spending.