Eurozone Economy

(In an interview with CCTV News-Biz China on May 15, 2012, Pro. Zhu Ning analyzed Eurozone economy in terms of its impact on China’s economy, Greece debt crisis and French President Francois Hollande’s new policies.)

There are still several policies to choose which the policy makers have in their arsenals. Deposit reserve ratio or the interest rate the policy makers would have to strike a very dedicated balance here, because given the large amount of liquidity in the economy, given the still high level of the housing prices and the CPI, I don’t think there is much room for a new very aggressive new run-off stimulus package right now.

Things will become worse before they can become any better. Germany is saving the day for now; it is the question of how long Germany can persist. It is important to keep in mind that the Euro zone is a very interdependent economy zone. So without any support from other counties, Germany cannot be a very instrumental in this regard for a long period time.

Given how the things are standing right now, it is just the matter of how the resolution will be made within the country of Greece, it’s just the matter of the time of what they would have to exit the Eurozone, because no other solution either from the central bank or from the IMF to bail out Greece once again or twice again.

It is going to be a tough balance or tradeoff (trade-off) between a short-term stability and long-term prospect. If you are putting the austerity measures into the economy right now, of course we are going to have some saving Greece in sovereign debt crisis. If we put the austerity measures in for too long, it’s going to hurt the long term prospect of growth. But the balance here is very difficult to strike and it is exactly the nature of the European sovereign debt crisis. The trade-off between the long term and short term, it is very difficult for politicians to make up their mind.