Chart of the month
Eurozone malaise is not confined to the periphery
Since the eurozone sovereign debt crisis erupted in 2009, attention has been focussed on the struggling economies of the Mediterranean countries, notably Greece, Cyprus, Portugal and Spain. To the north, Germany, Finland, Austria and the Netherlands were and still are perceived to be in much better shape. But is this North/South, Club Med/Teutonic Bloc split too simplistic? In the case of the Netherlands, it certainly appears to be. In the last year Dutch M3 growth has turned negative. The quantity of money has fallen by 7.4% since August 2012 and every month since June 2013 has recorded annual M3 growth below zero. Annualised quarterly M3 growth has also been negative for 20 of the last 24 months.
Two large Dutch banks, ING and Rabobank, have mentioned in reports to shareholders that the ECB’s Asset quality Review is a major source of uncertainty. They have held back the expansion of their balance sheets. With negligible asset growth and a build-up of capital in the banking system, it is inevitable that broad money falls. As the graph shows, so far in 2014 the fall has not been large. Nevertheless, money stagnation has been associated with a weak property market and depressed construction activity. The northward creep of the Eurozone malaise and adverse macroeconomic developments in a core member must worry the ECB. They certainly argue for a more powerful policy response. A good case can be made that a central aim should be to boost the growth rate of broad money.
Contact address: International Monetary Research Ltd., Huntley Manor, Huntley, Gloucestershire GL19 3HQ
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