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Since the Great Recession of 2008-2009, growth has been generally slow and painful, and the danger of prolonged stagnation in Europe is a very real possibility. The euro has dropped to its lowest value in nine years. With Europe accounting for 25% of global trade, its recovery is imperative to the health of the global economy. The forecast for 2015 is looking dismal, only marginally better than 2014.  As the euro currency falls, it encourages the purchase of more imports. The reduction in exports,together with an increase in imports, results in Europe having an adverse balance of trade thereafter.

Unemployment rate of 10.3%.This means that there are 16504 thousand people who remain unemployed in Europe. As unemployment continues, there may be :

1) Loss of income to the factors of production.   2) Loss of national output to the economy 3) Loss of tax revenue to the government .

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Low economic growth at 0.3%

High unemployment rate of 10.3% as of February              2016.

Negative inflation of 0.2%

Balance of Trade surplus at 19048.4 million EUR

0% interest rate

Potential causes of problems :
- Firstly, the 0% interest rate causes an outflow of hot money as financial speculators go in search of higher returns on financial assets. This causes the KA deficit.
- Demand for Euro decreases in FOREX market, which leads to an increase in (X-M), as seen in the BoT surplus.

- High unemployment rates could be due to structural unemployment, which is unemployment due to irrelevant skills due to changing nature of jobs. This can be gathered from the article which states there is "inflexible labour markets".

http://www.economicshelp.org/blog/1247/economics/european-unemployment-2/
http://www.tradingeconomics.com/euro-area/indicators

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I used to think that the Eurozone Economy is strong and stable based on the high value of the Euro in terms of USD and SGD. I do know that once the Eurozone Economy experiences recession, it will impact a lot of the other world economies.

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But now I think investors are losing confidence in the European economy and the future of the European economy might not be very strong.JY

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The fiscal policy has to be strengthened and maintained. With the interest rate not falling too low and causing AD to fall as a result of consumption and investment increasing too sharply. Other policies like supply side policies also can be implemented to increase to increase quality of workforce to pull the country out of high employment with their unemployment rate increasing from 6.0% to 8.0% from 2015 to 2016. JY

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As the government loosened fiscal policy, the Central Bank prematurely slashed its benchmark interest rate in 2011-12. This pushed up inflation, which is now well above the bank’s self-imposed upper limit of 6.5%, and way above its 4.5% target. The interest-rate cut has since been reversed. Since last July the Bank's monetary policy-makers have kept the rate at 14.25%, nearly two percentage points higher than before the decision to cut.  JY

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IN THE past few years Brazil's economy has disappointed, and then some. It grew by 2.2% a year, on average, during President Dilma Rousseff's first term in office in 2011-14, a slower rate of growth than in most of its neighbours, let alone in places like China or India. Last year GDP shrivelled by 3.8%, and is expected to shrink again in 2016. Household consumption has registered the first drop, year-on-year, since Ms Rousseff's left-wing Workers' Party (PT) came to power in 2003. At the same time, public spending has surged. In 2014, as Ms Rousseff sought re-election, the budget deficit doubled to 6.75% of GDP; it has since swelled by another four percentage points. And now Ms Rousseff is facing her greatest challenge yet: on April 17th the lower house of Congress voted to start impeachment proceedings against her over accusations of accounting trickery to hide the true size of the budget deficit.

This year is likely to be the third in a row when the government fails to set aside any money to pay back creditors: the target for the primary surplus, which excludes interest owed on debt, has been cut from an unambitious 0.5% to basically nought, and the government is trying to leave itself room to post another primary deficit. Brazil's gross government debt of 70% may look piffling compared to Greece's 197% or Japan's 246%. But its high interest rates of around 14% make borrowing costlier to service. Debt payments eat up more than 8% of output. To let businesses and consumers borrow at less exorbitant rates, public banks have increasingly filled the gap, offering cheap, subsidised loans. These went from 40% of all lending in 2010 to 55%.

As the government loosened fiscal policy, the Central Bank prematurely slashed its benchmark interest rate in 2011-12. This pushed up inflation, which is now well above the bank's self-imposed upper limit of 6.5%, and way above its 4.5% target. The interest-rate cut has since been reversed. Since last July the Bank's monetary policy-makers have kept the rate at 14.25%, nearly two percentage points higher than before the decision to cut. Alongside the lack of macroeconomic rigour, there was a lot of microeconomic meddling: the government pursued a clumsy industrial policy and shortchanged the private sector, for example by insisting on absurdly low rates of return on concessions to run infrastructure projects. Small wonder confidence slumped among businessmen.

Red tape, poor infrastructure and a strong currency have rendered much of industry uncompetitive. So consumers have been the main source of demand. A low unemployment rate pushed up wages. In the past ten years wages in the cushy public sector have grown faster than GDP (private-sector workers have fared worse). That allowed consumers to borrow more, which encouraged still more spending. Now the virtuous circle is turning vicious. Real wages have been falling since March 2015 (compared with a year earlier), mainly because Brazilian workers' productivity never justified the earlier rises. People are returning to seek work just as there are fewer jobs to go around: unemployment in the main metropolitan areas, which has long been falling and dipped below 5% for most of 2014, increased to 8.2% in February. A broader measure puts it at 9.5%. Economists expect it to exceed 10% this year.

To improve its finances the government has cut spending on unemployment insurance (which had risen even when the jobless rate was falling) and on other benefits. Taxes, including fuel duty, have gone up. So, too, have bills for water and electricity (two-thirds of which is generated by hydropower). The point was to reduce demand following a record drought in 2014 and to correct a policy of holding down regulated prices to keep inflation in check (and voters happy). But these increases have stoked inflation.

All this is hurting disposable incomes, a big portion of which are spent paying back consumer loans taken out in the good times. Consumer confidence has fallen to its lowest level since Fundação Getulio Vargas, a business school, began tracking it in 2005. The government has no money to boost investment. Petrobras, the state-controlled oil giant and Brazil's biggest investor, is in the midst of a corruption scandal that has paralysed spending: the forgone investment may have reduced GDP growth last year by one percentage point. It is hard to see where growth will come from.

Worst of all, Ms Rousseff's policy levers are jammed. Failure to rein in spending already prompted all three big rating agencies to strip Brazil of its prized investment-grade credit rating. Now economists fret that it may render monetary policy powerless: as the interest bill balloons, the Central Bank could be forced to set rates to make it manageable rather than to keep prices in check. The hawkish former finance minister, Joaquim Levy, slashed 70 billion reais ($19.5 billion) off the discretionary spending planned for 2015 (on top of the modest welfare reforms). But that was trimming around the edges: roughly 90% of government spending is ring-fenced and needs congressional approval (or sometimes constitutional change) to curb.

Nor can the Central Bank ease monetary policy: that would once again undermine its credibility and risk de-anchoring inflation expectations. If that were not enough, a depreciating real is adding to price pressures, though the prospect of Ms Rousseff's fall has cheered markets: the real and the São Paulo stock market have rebounded as the likelihood of impeachment has risen. But not before making Brazil's $230 billion dollar-denominated debt dearer. Ms Rousseff cannot bring Brazil's animal spirits back to life with more spending and lower interest rates. She was hoping a return to economic orthodoxy would do the trick. Unfortunately, she lacks the political capital-and possibly conviction-to embrace it more fully in the teeth of opposition to austerity, not least from her own left-wing Workers' Party, whose support she desperately needs to avert impeachment. As a result, Brazil's economy will take a while to heal.

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IN THE past few years Brazil's economy has disappointed, and then some. It grew by 2.2% a year, on average, during President Dilma Rousseff's first term in office in 2011-14, a slower rate of growth than in most of its neighbours, let alone in places like China or India.

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I used to think Europe has a high GDP and is a very strong economy when compared to other countries. JY

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The eurozone is one of the top 5 largest economies in the world if taken as a single country. The largest contributing industry is the service sector which makes up almost 75% of the GDP.

There has also been a large structural change following the Eurozone crisis in 2010.

http://voxeu.org/article/eurozone-crisis-and-eu-institutional-change-new-cepr-policy-insight
https://en.wikipedia.org/wiki/Economy_of_the_European_Union

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I used to think that Europe is an area with a strong and stable economy with a BoP surplus and stable currency and exchange rate.

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I used to think that Europe is a large and open economy that is stable. I think that its BoP balance as well as its budget balance is in surplus.

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I used to think that Europe is a large and open economy that is stable. I think that its BoP balance as well as its budget balance is in surplus.

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Now, I want you to think about how your ideas about Europe's economy has changed as a result of what your team has been discussing whilst completing the task above. Again in just a few sentences write down what you now think about  Europe's economy. Start your sentences with,

“But now, I think…”

Each of you must post your response in the space below this box.

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Task 3: Based on the findings from Task 1, One of your team members will need to address the policies to solve this problem.

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Task 3: Based on the findings from Task 1, One of your team members will need to address the policies to solve this problem.

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Explain and evaluate the use of 3 policies

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Task 2: One of your team member will also need to find out the current nature or structure of your economy, supported with research (eg news paper articles or video)

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Task 2: One of your team member will also need to find out the current nature or structure of your economy, supported with research (eg news paper articles or video)

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For example, is it a small and open economy? Is it a large economy? Is the economy an export-driven economy? Is it undergoing any structural changes? Please upload the links here too.

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 Task 1: Two of your team members in your cabinet need to identify the top macroeconomic problems your country is facing. Other than the video clip and newspaper provided in this page, you will need to do research (eg news  paper articles) and thereafter post in this wall.  Explain the potential sources of these macroeconomic problems your country is facing.

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 Task 1: Two of your team members in your cabinet need to identify the top macroeconomic problems your country is facing. Other than the video clip and newspaper provided in this page, you will need to do research (eg news  paper articles) and thereafter post in this wall.  Explain the potential sources of these macroeconomic problems your country is facing.

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Please write your response here, or you may just add new post. Use economic analysis (for example ADAS analysis) in your answers where possible.

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THE world economy is not in good shape. The news from America and Britain has been reasonably positive, but Japan's economy is struggling and China's growth is now slower than at any time since 2009. Unpredictable dangers abound, particularly from the Ebola epidemic, which has killed thousands in West Africa and jangled nerves far beyond. But the biggest economic threat, by far, comes from continental Europe.

Now that German growth has stumbled, the euro area is on the verge of tipping into its third recession in six years. Its leaders have squandered two years of respite, granted by the pledge of Mario Draghi, the European Central Bank's president, to do "whatever it takes" to save the single currency. The French and the Italians have dodged structural reforms, while the Germans have insisted on too much austerity. Prices are falling in eight European countries. The zone's overall inflation rate has slipped to 0.3% and may well go into outright decline next year. A region that makes up almost a fifth of world output is marching towards stagnation and deflation.

Optimists, both inside and outside Europe, often cite the example of Japan. It fell into deflation in the late-1990s, with unpleasant but not apocalyptic consequences for both itself and the world economy. But the euro zone poses far greater risks. Unlike Japan, the euro zone is not an isolated case: from China to America inflation is worryingly low, and slipping. And, unlike Japan, which has a homogenous, stoic society, the euro area cannot hang together through years of economic sclerosis and falling prices. As debt burdens soar from Italy to Greece, investors will take fright, populist politicians will gain ground, and-sooner rather than later-the euro will collapse.

This parrot has ceased to be

Although many Europeans, especially the Germans, have been brought up to fear inflation, deflation can be still more savage (see article). If people and firms expect prices to fall, they stop spending, and as demand sinks, loan defaults rise. That was what happened in the Great Depression, with especially dire consequences in Germany in the early 1930s.

So it is worrying that, of the 46 countries whose central banks target inflation, 30 are below their target. Some price falls are welcome. Tumbling oil prices, in particular, have given consumers' incomes a boost (see article). But slowing prices and stagnant wages owe more to weak demand in the economy and roughly 45m workers are jobless in the rich OECD countries. Investors are starting to expect lower inflation even in economies, such as America's, that are growing at reasonable rates. Worse, short-term interest rates are close to zero in many economies, so central banks cannot cut them to boost spending. The only ammunition comes from quantitative easing and other forms of printing money.

The global lowflation threat is a good reason for most central banks to keep monetary policy loose. It is also, in the longer term, a prompt to look at revising inflation targets a shade upwards. But the immediate problem is the euro area.

Continental Europe's economy has plenty of big underlying weaknesses, from poor demography to heavy debt and sclerotic labour markets. But it has also made enormous policy mistakes. France, Italy and Germany have all eschewed growth-enhancing structural reforms. The euro zone is particularly vulnerable to deflation because of Germany's insistence on too much fiscal austerity and the ECB's timidity. Even now, with economies contracting, Germany is still obsessed with deficit reduction for all governments, while its opposition to monetary easing has meant that the ECB, to the obvious despair of Mr Draghi, has done far less than other big central banks in terms of quantitative easing (notwithstanding this week's move to start buying "covered bonds").

If there was ever logic to this incrementalism, it has run out. As budgets shrink and the ECB struggles to convince people that it can stop prices slipping, a descent into deflation seems all too probable. Signs of stress are beginning to appear in both the markets and politics. Bond yields in Greece have risen sharply, as support for the left-wing Syriza party has surged (see article). France and Germany are trading rhetorical blows over a new budget proposal coming out of Paris.

Joining the bleedin' choir invisible

If Europe is to stop its economy getting worse, it will have to stop its self-destructive behaviour. The ECB needs to start buying sovereign bonds. Germany's chancellor, Angela Merkel, should allow France and Italy to slow the pace of their fiscal cuts; in return, those countries should accelerate structural reforms. Germany, which can borrow money at negative real interest rates, could spend more building infrastructure at home.

That would help, but not be enough. It is a bit like the early years of the euro debacle, before Mr Draghi's whatever-it-takes pledge, when half-solutions only fed the crisis. Something radical is needed. The hitch is that European law bans many textbook solutions, such as ECB purchases of newly issued government bonds. The best legal option is to couple a dramatic increase in infrastructure spending with bond-buying by the ECB. Thus the European Investment Bank could launch a big (say €300 billion, or $383 billion) expansion in investments such as faster cross-border rail links or more integrated electricity grids-and raise the money by issuing bonds, which the ECB could buy in the secondary market. Another possibility would be to redefine the EU's deficit rules to exclude investment spending, which would allow governments to run bigger deficits, again with the ECB providing a backstop.

Behind all this sits a problem of political will (see article). Mrs Merkel and the Germans seem prepared to take action only when the single currency is on the verge of catastrophe. Throughout Europe people are hurting-in Italy and Spain youth unemployment is above 40%. Voters vented their fury with the established order in the EU's parliamentary elections earlier this summer, and got very little change. Another descent into the abyss will test their patience. And once deflation has an economy in its jaws, it is very hard to shake off. Europe's leaders are running out of time.

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THE world economy is not in good shape. The news from America and Britain has been reasonably positive, but Japan's economy is struggling and China's growth is now slower than at any time since 2009. Unpredictable dangers abound, particularly from the Ebola epidemic, which has killed thousands in West Africa and jangled nerves far beyond.

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Video Clip on Eurozone economy: Italy

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How did Italy become more sceptical about membership in the EU? FT Rome bureau chief James Politi visits Parma in northern Italy and asks students, shop owners, the mayor and business people about the matter.

Transcript

See our accessibility page for more information about transcripts

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How did Italy become more sceptical about membership in the EU? FT Rome bureau chief James Politi visits Parma in northern Italy and asks students, shop owners, the mayor and business people about the matter. See our accessibility page for more information about transcripts

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Videoclip on the Eurozone Economy

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The European Central Bank has jolted investors with a bold package designed to stimulate the eurozone's economy, cutting interest rates to a new low and expanding QE. FT economics editor Chris Giles talks to FT editor Lionel Barber about whether it will be enough.

Transcript

See our accessibility page for more information about transcripts

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The European Central Bank has jolted investors with a bold package designed to stimulate the eurozone's economy, cutting interest rates to a new low and expanding QE. FT economics editor Chris Giles talks to FT editor Lionel Barber about whether it will be enough.

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Task 4: Based on the findings from Task 1,2 & 3, the group leader will evaluate and synthesize (similar to writing evaluative conclusion) whether the use of these policies will be effective in addressing these macroeconomic problems. 

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Task 4: Based on the findings from Task 1,2 & 3, the group leader will evaluate and synthesize (similar to writing evaluative conclusion) whether the use of these policies will be effective in addressing these macroeconomic problems. 

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You may wish to use specific judging criteria to assess the suitability of these policies.

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As an economic advisor (group leader), your role is to recommend and justify whether the use of policies have been effective in tackling recent macroeconomic problems faced by your country. Your job is to discuss with a panel of ministers (your team members) to do research and to propose solutions (policies) to solve these problems. Thereafter, you need to evaluate if the use of these policies  are effective or appropriate for your country.

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Before commencing the activities (Task 1 to 4 below) spend 3 minutes to think of this question:

You may have some initial ideas about Eurozone economy. In just a few sentences, I want you to write what it is that you used to think about Eurozone economy. Take a minute to think back and then post your response in the following format:

“ I used to think that Europe is ..........................

Each of you must post your response in the space below this box.