Fiscal Austerity & the Eurozone

In case you’re wondering how the European experiment with fiscal austerity in a slack economy is working out, a recent Wall Street Journal article may provide some indications:

The euro-zone economy suffered a major loss of momentum at the end of the second quarter and retail spending fell sharply, even as the European Central Bank prepares to raise its interest rates again.

Growth in the private sector of the 17-nation currency bloc slowed to its weakest in 20 months, data showed Tuesday. . . .

The composite purchasing managers’ index for countries using the euro fell to 53.3 in June, the weakest since October 2009, from 55.8 in May, financial services company Markit Economics said.

Also Tuesday, the European Union’s official statistics agency, Eurostat, said the volume of euro-zone retail sales fell by 1.1% in May from April, the largest month-to-month fall since April 2010.

The sharp decline in sales likely reflects a squeeze on real incomes as the rise in consumer prices outpaces the rise in wages, and high levels of unemployment make consumers wary of spending too freely.

The full article is here.

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