Originally published by Bloomberg News
As the Euro crisis continues to play out in Greece and other European countries, the future of the euro is being called into question. Troubled economies face years of slow growth and deflation unless EU leaders overhaul fiscal and monetary policy.
Uri Dadush explains that Greece, Spain, Ireland, Italy, and Portugal face a “severe risk of prolonged depression.” Although fiscal policy adjustments will help the situation, “one part of the solution is to have more expansionary monetary policy” in other European nations. In order to restore competitiveness, troubled economies must reduce their real wages, but they also “need some growth in nominal GDP in order to deal with their rising debt burdens.” Regardless of any policy changes, however, Europe will likely see “slower growth…for several years.”
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