However there is some limited good news.  As Krugman never tires of pointing out, the deflationary impact of Government cuts is proportional to the rate of change of Government expenditure. EU Governments may not be spending much, but most aren't further cutting their expenditure, and thus the economic impact of their parsimony is petering out. As Ireland (and to a lesser extent) other peripheral EU states have shown, economic growth can recover quite quickly (off a much lower base) once the rate of change of cutbacks in Government spending declines.

And while QE and zero interest rates has the unwanted effecting of boosting asset price inflation in growing EU economies, it does at least have the effect of improving the sustainability of Peripheral sovereign and private debts and reducing asset price deflation in those economies.. You might say, just balm for a basically unsustainable and unjust situation, but central banks don't do morality.

Index of Frank's Diaries