Eurozone slowdown adds to debt crisis headaches

Angela Merkel and Nicolas Sarkozy are under pressure to come up with a structural answer to the euro’s problems rather than a stopgap solution First Britain, then the United States and now the eurozone. The message from the recent data is unambiguous: the big economies of the west slowed down to little more than stall speed in the spring of 2011. Tuesday’s data for the bloc of 17 countries that are part of monetary union was worrying for a number of reasons. Some slowdown in activity had been on the cards given the strength of output growth in the first quarter of the year, but the nugatory 0.2% increase in gross domestic product was far weaker than expected . More troubling perhaps was the evidence that the slowdown on the fringes of the single currency has now burrowed its way to the core of the eurozone. France had already announced that its economy was flat in the second quarter ; on Tuesday, Germany and the Netherlands said they had each registered expansion of just 0.1%. This matters for Greece, Ireland, Portugal, Spain and Italy because the only way they can hope to make up the growth shortfall from domestic austerity is by exporting to the rich countries at the heart of monetary union. If that proves impossible, as Tuesday’s figures suggest it might, that will put additional strain on the countries on the periphery, making further expensive bailouts more likely and increasing the chances of a break-up of the single currency. It is not hard to find explanations for the slowdown in the eurozone. As in Britain and America, consumers are being squeezed hard by rising energy and food prices; there have been supply problems for industry caused by the Japanese tsunami; and there has clearly been a loss of both consumer and business confidence caused by the inability of Europe’s leaders to get on top of the sovereign debt crisis. In the light of this, the European Central Bank’s decision to raise interest rates twice during the second quarter looks premature, if not downright stupid. With the eurozone’s economy barely growing and the single currency fighting for its very existence, any further increases in borrowing costs now look extremely remote. Politically, Tuesday’s data will no doubt add a bit of spice to the summit meeting between Angela Merkel and Nicolas Sarkozy. The German and French leaders are now under increasing pressure to come up with a structural answer to the euro’s problems rather than – as has been the case all too often in the past – a stopgap solution. George Osborne repeated his call for greater fiscal integration in the eurozone in his exchange of letters with Sir Mervyn King about UK inflation , but the chancellor’s advice is unlikely to be heeded unless the debt crisis gets a lot worse. On the basis of this data, there is a good chance that it will. European debt crisis Europe Germany Europe Larry Elliott guardian.co.uk

Posted by on August 16, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.