Journal of International Business and Economics

Can the Euro Area Cope Successfully with the Low Inflation Trap?
Jan L. Bednarczyk

Abstract
Can the Euro area cope successfully with the low inflation trap? A comparison of macroeconomic indices in the two leading economies shows that both the United States and the euro zone, more or less at the same time, managed to overcome a deep economic depression which they experienced in 2009, yet, in the next year, i.e. 2011, the euro zone economy clearly started to slow down which was revealed by the 2012 recession, still continued in 2013. Among the main causes of different behaviour of economic growth indices in the US and the euro zone the most important one seems to be a discrepancy in changes in long-term real interest rates on both markets. More then 1.5 point differences in long-term real interest rates in the years 2011-2012 translated into similar differences in the economic growth rate in the years 2012-2013. The reason why in the euro zone countries the long-term interest rates were maintained at such a high level was the inconsistency of the ECB policy concerning interest rates and lack of flexibility in the anti-inflation policy. The ultimate result is the occurrence of symptoms of the low inflation trap threatening the euro zone economies.

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