Indiana State economist: Eurozone has failed to solve underlying monetary issue

By: ISU Communications and Marketing Staff, ISU Communications and Marketing Staff
November 18, 2011

Eurozone countries teetering on the brink of financial collapse that could drag the world along for the ride have not resolved the underlying currency issues, an Indiana State University economist said Wednesday.

Robert Guell, an economics professor at ISU, was a speaker during the Fall Business Outlook at Holiday Inn in Terre Haute. The event featured Guell, along with Timothy Slaper of the Indiana Business Research Center and Robert Neal, associate professor of finance in the Kelley School of Business at Indiana University in Indianapolis. They spoke about the current economic conditions and gave 2012 predictions for Terre Haute, the country and the world.

The Fall Business Outlook was cosponsored by the ISU Scott College of Business, West Central Indiana Small Business Development Center at ISU, Terre Haute Chamber of Commerce and Terre Haute Savings Bank. As a complement to the annual Ground Hog Day Economic Forecast in Terre Haute, the event also featured the Indiana Business Research Center Outlook from Indiana University.

Guell focused mostly on the local economy, though he also elaborated on the events unfolding in Europe. Eurozone countries boxed themselves into a corner, he said, by borrowing money that they could not print. He cited the example of how the U.S. could print money needed to pay its debts. But countries in the eurozone, which utilize the international euro currency and which Guell remarked seem "to be playing whack-a-mole" with their respective financial crises, cannot simply print more euros to pay their debts.

"No country in Europe can do that," Guell told the audience. "They have collectively walked themselves to the cliff, and without the ability to do that, one bad move, one failed whacked mole of international insolvency ... could be felt by a group of Hauteans thousands of miles away."

Different countries using their own currency have the ability to print more money to pay bills, which is "the undesirable but always available" stopgap measure, Guell noted after the event.

"The only options eurozone countries have are the ones that they're electing to do, which are the austerity measures that they're now passing and they're subjecting to their people," he said, "and Europeans are not at all happy about them."

Nancy Merritt, dean of the Scott College of Business at ISU which co-sponsored the event, introduced Guell as the first speaker. She remarked that Guell, who speaks annually at the Groundhog Day Economic Forecast held each February at ISU, is sometimes referenced as "Dr. Doom" because of his negative outlook for the economy.

This past February he projected economic growth, though he conceded in August his projection was too high.

"People sort of forget, and it's sort of good that they forgot, that I was kind of optimistic in February, uncharacteristically optimistic," Guell told the audience at the beginning of his Wednesday presentation, "and man, did I learn my lesson."

He also discussed how Terre Haute's seasonally unadjusted employment data did not drop in September or October as expected, and remained higher than normal, underscoring the city's "very, very tight" job market.

The health care and education sectors "pretty much across the board" are doing well, Guell said. He added that there is potential for some job growth in the food processing sector. Still, Merritt noted at the end of his presentation that it sounded "doomish."

"It is good, though, to know that in Terre Haute we do have some jobs happening and we have stability in our education" and health care sectors, she added.

Yet the U.S. economy has not entered a robust growth phase, with only 1.5 percent growth in the gross domestic product. Though that means the economy is growing, Guell cautioned that it put the U.S. in a precarious situation.

"We're in a position," he warned, "where one bad thing nationally [or] internationally, could tip both the state and the region back into recession."

Photo: http://isuphoto.smugmug.com/Events/Chamber-of-Commerce-Economic/i-6jCxVWf/0/L/111611chamberofcommerceeconomi-L.jpg (ISU/Tony Campbell)
Indiana State University economist Robert Guell speaking at the Fall Business Outlook at Holiday Inn in Terre Haute.

Contact: Nancy Merritt, dean, Scott College of Business, Indiana State University, 812-237-2000 or nancy.merritt@indstate.edu; Robert Guell, professor of economics, Indiana State University, 812-237-2169 or robert.guell@indstate.edu.

Writer: Austin Arceo, assistant director of media relations, Office of Communications and Marketing, Indiana State University, 812-237-3790 or austin.arceo-negrich@indstate.edu.