The Eurozone crisis is back

Inflation is just 0.3%, markets are tanking and the Greek ghost walks again.

by Rachel Savage

There’s a cold wind blowing over from the continent as the twin fears of deflation and a triple-dip recession stalk the Eurozone, while Greece wobbles closer to the edge yet again.

Inflation slipped to 0.3% in September, Eurostat confirmed today, from 0.4% in August and 1.1% a year earlier. The Eurozone now looks perilously close to full-on deflation and the Japan-circa-1997 dangers that brings with it: a downward spiral of falling prices and economic contraction.

Prices actually fell in five countries, including Italy and Spain. The biggest drop, though, was in Greece, where inflation was -1.1% in September.

There’s a definite whiff of déjà vu about Greece right now. The Athens Stock Exchange has dropped 13% since Monday, while the yield (which moves inversely to price) on the country’s 10-year bonds spiked up towards 9% this morning, having been just 6.6% a week ago.

Investors are freaking out about the world economy generally – markets are sliding across the world and no one, especially if they’re a trader, likes being caught on the wrong side of a trend. But Greece, where unemployment is still a generation-destroying 26%, is once again high up the list of ‘Things to Panic About’ due to another bout of political instability.

Its coalition government survived a no-confidence vote last week, but it is looking increasingly likely that it will fail to get the three-fifths parliamentary majority it needs to elect a new president in February. That would mean snap elections, and leading the polls is Syriza, a radical left-wing party that wants to reverse austerity, write off 50% of the country’s debt and maybe even leave the Euro.

More generally, sliding inflation and other rubbish data is making it look more likely that the Eurozone will slip into a triple-dip recession. Germany, the union’s biggest economy, shrank 0.2% in the second quarter of this year, and many economists are expecting it to contract again.

No wonder, then, that European stock markets are taking a hammering. The German DAX is down 1.73% today, having slid more than 11.5% so far this year. France’s CAC 40 has fallen 2.24%, after dropping 10.58% in the last six months. Italy’s exchange is down 3.45%, meaning it’s fallen 8% in the last five days, while Spain’s IBEX 35 is down 3.48%.

That’s an awful lot of red on traders’ screens, which all adds up to even worse news for the Eurozone’s economies, companies and trading partners – which, of course, includes us.

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