In US we trust

US Obama

From a dime to a thousand green back, the US deposits all its confidence in God for preserving its value. You wouldn’t dream of a better patronage when your purse is at stake. The FED and the Treasury don’t convey the same trust when it comes to banknote issuing.

In Europe we tend to cast a less spiritual view to money. We still firmly believe the ECB being able to keep the house running. A staunch faith derived from past performance by the Bundesbank, its close proxy, by bounding to hold a firm grip on inflation and disregarding other ancillary goals such as growth. True enough, in face of a stumbling economy, the ECB is twisting its paramount objective to allow bloating the financial system with much needed liquidity. It has even pledged to monetize public deficit should it prove necessary to ring-fence the Euro. But, on the whole, our Continent still pursues a neutral policy stance in the midst of the worst scenario since monetary union entered into force.

The Commission winter forecasts show a dismal picture. Europe’s GDP will decline this year propelling unemployment to higher than ever levels, while prospects for 2014 look far from promising. Austerity is denting income, consumption and investment, and nothing warrants this vicious circle could be overcome unless external demand kicks off. In other words, any hope for a mild recovery rests on the US economy keeping running. Otherwise we are heading for a rough ride.

Europe is unable to deliver growth on its own. By sticking to fiscal virtue, no matter the price as Ms Merkel has recently voiced, it lacks enough stamina to get out of the current recession. The chances to revert the situation are anchored on a US recovery. Much the same as other big trade partners whose performance is closely linked to a sustained demand on the other side of the Atlantic.

So we all trust the US to get us out of trouble. Fortunately the FED will continue to deliver its controversial across the board asset buying, for all the concerns some members of the open market committee might show on future inflationary bouts. The US pragmatic way of coping with economic downturn stands as our only hope.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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