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The Euro Zone’s Rising Inflation and Unemployment Rate Report (Assessment)

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Updated: Apr 16th, 2019

The euro zone had been a region of envy in economic regards to many regions since its formation. However, the euro zone found itself in a predicament from late 2009 after the economic downturns that faced some countries in the euro zone.

Many euro zone countries piled up their debts to the extent that they were unable to service them. This was worsened by the fact that despite countries in the euro zone use of one currency they have different tax structures as well as regulations.

As a result, leaders of various countries found it difficult to interfere with affairs of other countries even when it was iminent that they could affect their performance. Consequently, countries in the euro zone were plunged into deep economic problems that seem to be worsening.

To begin with, the unemployment rate has been increasing since the crisis begun due to worsening economic conditions. However, the rate reached a record high of 10.7 percent in January since the formation of the euro zone in 1999. There are approximately 24.3 million people out of jobs in the entire euro zone. The number might be more given the fact that some people are unrecorded.

According to Keynesian economics, inflation rate and unemployment are inversely related in the sense that when one rises the other should decline. However, this has not worked in the euro zone. Despite the increasing rate of unemployment, inflation rate has also been increasing.

The average rate of inflation in January was 2.7 percent. Though this has been attributed to the increasing world energy prices, the economic crisis has a role to play. It should also be noted that though the European central bank has been keen on maintaining the inflation rate below 2 percent, it has not succeeded.

Increase in the money supply is known to end in high inflation rates though it is crucial in jump starting a stagnating economy. The debt crisis of the euro zone can be alleviated by increasing the accessibility of money which is what the European central bank wants to achieve through its low interest loans.

On the same note, various major banks are also printing money thus increasing the money supply. This, however, has increased the expectations that inflation rate will increase in future thus increasing the tendencies that inflation will raise in the near future.

This can also have dire effects on interest rates as well as the exchange rates. Nevertheless, it is sad to note that expansionary monetary policy seems to be the only feasible solution.

It is important to note that though collectively the euro zone countries have experienced increasing deteriorating economic conditions, some countries are worse than others.

Spain for example performed poorly with unemployment rate hitting 23.3 percent in November compared to Germany where the unemployment rate was 6.8 percent in February. Greece is also among the countries that have suffered serious effects as far as the euro zone crisis is concerned.

However, analysts have envisioned good times ahead though they are cautioning that it is not yet celebration time. Reports have showed that the manufacturing sector has recorded slight positive statistics. However, specialists say that the change is too small and the industry is still below par.

On the same note, the euro crisis is not likely to end any time soon given the extent of its effect on some countries for example Greece. It will be however be improper to say that the economic region will collapse since it is slowly picking up.

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