Praet Warns Deflation Could Become An Issue In The Eurozone

The euro lost some ground against the dollar as the greenback recovered after steep fall over night. The common currency traded at $1.2695 at 8:30 GMT as concern about the region’s growth continued to weigh.

A string of poor data coupled with falling inflation rates has many concerned that the eurozone has done an about face from its recovery. The European Central Bank has promised to do everything it can to keep the region afloat, but many believe the bank needs to ease further in order to prevent the bloc from falling into a period of deflation.

The Wall Street Journal reported that ECB Executive Board member Peter Praet said that although there are no signs of deflation at the moment, any shock  to the economy would push interest rates below zero. His remarks are consistent with those who are calling for a large scale quantitative easing program from the ECB, but buying government bonds is something Germany has been vehemently opposed to.

German officials say that a quantitative easing program is not the solution, and that eurozone nations should instead make necessary structural reforms.

This debate over whether or not further easing is a good idea has been highlighted by the potential for a battle over France’s 2015 budget. French Finance Minister Michel Sapin announced last week that the nation’s deficit was 4.3 percent of GDP, much higher than the 3 percent agreed upon with the EU. With the budget set to be submitted for approval on Wednesday, most see Brussels rejecting it.

Moving forward, investors will be watching for the German ZEW survey for a better idea of the nation’s economic health. Recent data from Germany has indicated that the nation’s economy is sputtering and could have fallen into a technical recession.