More Good News From Europe: Borrowing and Inflation on the Rise, Economies Contract


It doesn't look like August 14 is a great news day for Europe. Three news items in particular have been making headlines. As per usual, there is not much good news.

In the second quarter the economy of the Eurozone as a whole shrank 0.2 percent compared to the April to June quarter. Some countries have managed some growth, with Germany reporting GDP growth of 0.3 percent thanks to strong exports. France, typically portrayed as one of the stronger players in the eurozone, reported zero percent growth. Portugal and Italy were among the hardest hit by the eurozone's struggling economy, reporting growth figures of -1.2 and -0.7 percent respectively. 

Spain's crisis continues to worsen, with borrowing from the European Central Bank reaching a record $463 billion in July, up 11 percent from what was borrowed in June. President of the European Central Bank Mario Draghi has said that Spain can apply for bailout assistance from the bailout fund established by eurozone members, however Spanish Prime Minister Mariano Rajoy has said that he will wait for the ECB to outline its conditions before he makes a decision. 

In other news from Spain Rajoy confirmed that on August 24 the cabinet would meet in order to extend a welfare policy that allows the unemployed to claim payments of $494 a month.

Inflation in the United Kingdom is up to 2.6 percent. The rise is being blamed on a rise in the cost of airfares and a fall in the number of discount stores. The announcement comes shortly after the Bank of England announced another round of quantitative easing. Inflation could continue to rise if food prices, particularly grain and sugar, continue to increase due to bad harvests. Oil prices could also contribute to a rise in inflation. Although the rise in inflation is worrying some are claiming it is only a "blip", as the trend in the UK for the last few years has been for inflation to go down. British inflation has not dropped below two percent in years, and the United States is currently enjoying an inflation rate of less than two percent. Given that context maybe British economists should be a little more wary.