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Can Germany and France save the Eurozone?

With the revelation that consumer prices across the Eurozone fell by 0.7% year on year to July against just 0.1% year on year to June, there are concerns that deflation could be a potential problem in the future. However, the announcement earlier this week that the German and French economies have returned to growth is seen by many Eurozone analysts as a potential get out of jail card which could see other European economies recover quicker than many had expected.

The situation will become clearer over the next six months but those who believe that deflation has disappeared for good may well be in for a short sharp shock. It is vital that the European Central Bank continues to plough money into the European financial system because if liquidity is reduced over the next six months then ultimately economies around Europe will struggle to grow. It does look as though we are on the edge of a potential recovery in the Eurozone but there is still much work to be done and many obstacles to be overcome.

When the Eurozone was struggling the UK government was very keen to distance itself from its European partners but now that the Eurozone appears to have overtaken the UK on the recovery curve this policy may well backfire in the short to medium term.

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