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Big dilemma for euro zone economy

Thursday, August 28, 2014 - 02:08

Germany's inflation rate holds steady but fears of a dip to the euro zone's rate are increasing posing a dilemme for the ECB. As Sonia Legg reports the French President is now calling for a summit to discuss the best way to boost the region's econmy.

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The latest annual inflation rate in Germany didn't surprise. It held steady just below one percent. In Belgium inflation fell to its lowest level in almost five years. And Spanish prices were down half a percent on the month. The ECB is watching nervously - the overall euro zone figure is imminent. Sarah Hewin is from Standard Chartered. SOUNDBITE: Sarah Hewin, Regional Head of Research for Europe, Standard Chartered, saying (English): "If we see a dip in inflation tomorrow, which we think we probably will, then that will add to concerns that demand is just too weak in the euro area economy and deflation risks could emerge." There are other euro zone concerns too. Italy has warned it won't meet growth targets and French unemployment is up again. President Francoise Hollande is so worried he wants a summit to discuss a way forward. (SOUNDBITE) (French) FRENCH PRESIDENT FRANCOIS HOLLANDE SAYING: "Because one young person out of four in Europe is unemployed. Because the recovery is too weak. Because inflation is too low. Because the euro is too high and because Europe is threatened by a long and possibly interminable stagnation if we do nothing." Hollande wants the European Central Bank to act - citing the U.S recovery as a sign that monetary policy works. (SOUNDBITE) (French) FRENCH PRESIDENT FRANCOIS HOLLANDE SAYING: "We have a rather curious situation in which we are complaining about weak inflation and the French, of a high cost of living. And both are correct, the general level of prices may indeed be low but there is the feeling that certain prices are increasing, notably for the more vulnerable. So we must ensure that this situation is taken into account." But will Germany listen? IG's Alastair McCaig doesn't think so SOUNDBITE: Alastair McCaig, Market analyst, IG, saying (English): "The comments we've heard in the last 24, 48 hours out of Germany, Finance Minister Schaeuble and Angela Merkel, kind of points towards the Germans being really reluctant to sort of embark on any sort of quantitative easing measures or stimulus without suitable austerity measures being taken first." But Germany will be encouraged by the focus of the new pro-reform French government. And it might cut France some slack - if only to avoid trouble on its western borders.

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Big dilemma for euro zone economy

Thursday, August 28, 2014 - 02:08