It is widely accepted that an individual European country’s inflation is of no relevance and that only the average inflation in the euro zone as a whole matters, since it is part of a common market. Thus, countries within that market are often grouped as a single entity for analytical purposes. According to this view, the fact that inflation in the highly-indebted countries is below the euro-zone average is a good thing and is part of a relative price adjustment. The troubled debtor countries prices decline relative to the northern euro-zone countries. This boosts their competitiveness and is part of a healthy rebalancing mechanism. Although theoretically correct, the practical implication of this competitiveness effect is limited. With the exception of Greece, there is very little difference in national inflation rates in the euro zone. Germanys inflation is 1.3% (the highest rate) while inflation in the highly-indebted countries, Ireland, Spain, and Portugal, is 0.2 to 0.3% and in Italy 0.7%.
Question: A euro zone country can have major financial issues without necessarily damaging the economy of other member states.
Options:
A. true
B. false
C. uncertain
Answer: C