Spotlight on Geopolitics

In the first quarter of 2009, eurozone economies have contracted for the first time in 60 years by around 2.5 percent. Unemployment is expected to rise to around 10 percent of the workforce by 2010, while consumption of goods and services has decreased accordingly. All across the continent, car makers, builders and exporters are feeling the pinch and credit is tight in most EU countries.

This bleak situation begs the question of whether Nobel prize winner Paul Krugman is right on the issue of insufficient economic stimulus packages. In a recent interview, he has praised the massive Chinese financial assistance package, although he has criticized the Chinese officials´reluctance to stimulate internal demand. Krugman believes, however, that the pump-priming measures undertaken so far by the US, German or French governments are insufficient for getting the global economy back on track.

If his assessment of the situation is correct, the eurozone economies are facing the unenviable prospect of a Japanese-style “lost decade”. At best, insufficient financial support for manufacturers and consumers alike could lead to a timid recovery in 2010 and to sluggish growth rates, combined with high unemployment, for years to come.

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