Euro Zone: Going Nowhere Fast

George Osborne: gloomy

EXTRACT: However, the International Monetary Fund’s fears run even deeper. Blanchard admitted it was “entirely possible” that the developed countries will never return to their pre-crisis growth levels: a big chunk of economic production has been permanently lost. We are now entering a period of secular stagnation - ie, there has been a structural decline in potential growth rates. And the achievement of even these lower rates of expansion - one of the more optimistic scenarios - would require interest rates to be maintained at historically low levels over a lengthy period, and that brings its own problems, of course.

Yes, rock-bottom interest rates, combined with quantitative easing, has generated copious amounts of cheap money. But it has not done what was intended, which was to reawaken the animal spirit in capital and hence encourage investment - that in turn would power economic growth. Rather, delighted speculators have had casino chips stuffed into their hands. Or, in the words of the IMF’s financial counsellor, José Viñals, we are facing a “global imbalance” - with “not enough economic risk-taking in support of growth”, but instead “increasing excesses in financial risk-taking” that are “posing stability challenges”.

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