>There will not be any miracle cure

The seriousness of the euro zone’s economic and fiscal situation has led some analysts to believe that "miracle cures" might exist:

− inflation that could make it possible to reduce debt ratios. However, inflation cannot be decreed. Even if monetary creation becomes very rapid, there will be no inflation as long as there is no upturn in credit and global production capacity is saturated; inflation due to a rise in commodity prices does not help reduce debt ratios;

− protectionism, to regain market shares from emerging countries (customs tariffs or equivalent tax measures); but because of the form globalisation has taken, the substitutability between the euro zone’s domestic products and products imported from emerging countries is low, which makes protectionism ineffective;

− depreciation of the euro; it would have a positive effect on activity, but this effect would be weak given the low substitutability between domestic and imported products and the effect on import prices (including commodities);

− return of household confidence and rise in consumption if fiscal deficits are reduced quickly. However, it is unlikely that these "Ricardian neutrality" effects exist.

To read the full report: MIRACLE