The Eurozone is going nowhere as Germany's economy shrinks and France slashes growth forecasts

Sacré bleu. Ach nein. The spectre of the Eurozone crisis is still looming large as its biggest economies continue to linger in the doldrums.

by Rachel Savage
Last Updated: 16 Oct 2014

As the UK economy steams ahead (stagnating wage growth not withstanding), the Eurozone just can’t seem to drag itself out of the mire of the financial crisis that almost tore it apart. While France continues to go nowhere fast, even Germany, the largest economy in Europe, has stuttered.

GDP in the ‘engine’ of Europe shrank 0.2% in the second quarter of this year, having grown 0.7% in the previous three months. Most economists had expected it to stay put, compounding the disappointment of figures released yesterday showing annual German inflation had fallen to 0.8%, the lowest level since February 2010. The prospect of further pain from Russian sanctions is not helping either.

Meanwhile, GDP in France, the nouveau ‘sick man of Europe’ alongside Italy (whose economy is forecast to shrink this year), Spain, Portugal and Greece, stayed put for the second quarter in a row. There was no good news to sweeten that pill either, as it slashed its growth forecast for this year in half to 0.5% and said its economy was unlikely to expand more than 1% in 2015, well below the previous 1.7% estimate.

‘Growth has broken down, in Europe and in France,’ finance minister Michael Sapin wrote in Le Monde, admitting the government would miss its public deficit target of 3.8% this year and probably also break its promise to the EU to get it down to 3% by 2015.

He took aim at the Union and the European Central Bank, saying France would cut its deficit ‘at an appropriate pace’ and Europe needed monetary policy ‘adapted to the exceptional situation of weak growth and weak inflation across the Eurozone’.

Although Sapin was clearly trying to defect from France’s inability to get a grip on its fiscal policy, he has a point. ECB president Draghi has been hinting he will resort to quantitative easing to try and reverse downward spiralling inflation and growth, after cutting the Bank’s deposit rate to zero has done pretty much nowt. Both policitians and the ECB need to get a grip soon, though, otherwise Europe will be going downhill again, rather than just nowhere.

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