- A tumbler has automatic stabilizers – the eurozone has not.
It is one
of the well known problems of the eurozone that it is hardly
possible for the European Central Bank to determine an appropriate
base interest rate, given the different
economic situations of the various member states. In
a time of cyclical recession, inflation rates usually decrease, so
that the central bank lowers the interest rates, which makes credits cheaper, stimulates
the economy, and raises inflation. In
a time of economic boom, by contrast, inflation usually goes up, to what a
central bank responds with heigher rates, which make loans more expensive, cool down the economy, and reduce inflation. However,
if a central bank has to establish a common interest rate for several
countries, some of which are in recession while others are on the upswing,
it faces a virtually impossible task.
