Eurozone members' economies diverge

As the debt crisis rages on in Europe, member states are heading off in very different directions.

by Michael Northcott
Last Updated: 19 Aug 2013

Angela Merkel must be one frustrated leader: she desperately wants further European integration, with fiscal and political union between states. Yet that is looking increasingly unlikely thanks to the latest predictions about economic performance within the eurozone. The Bank of France today announced that it expects the French economy to contract 0.1% between April and June this year, whilst the German Bundesbank has increased its original projection for growth from 0.6% to 1%. 

The news is not good for the Europhiles who want to see ‘ever closer integration’. Merkel yesterday said that a more closely integrated Europe was essential, and that she would even back a ‘two speed approach’ to achieve it, allowing other countries to catch up with the powerhouse that is Germany, you understand…

Amongst the worst news that European leaders have to contend with is the number of countries teetering on the edge of – or already in - a double-dip recession. Spain is currently suffering one and has just had it’s sovereign credit rating downgraded by ratings agency Fitch, meaning that Europe’s fourth largest economy is now hovering barely above ‘junk’ status. The country’s treasury chief this week told media how the bail-out apparatus in Europe would not be sufficient to rescue Spain, if it came to it. ‘Two-speed’ is hardly likely if a major European economy goes to the wall.

To make matters worse, official figures were released earlier this week showing that the eurozone as a whole achieved zero growth in the first quarter of 2012. Even when it was experiencing some modest growth, analysts suspect the economic strength of Germany was propping up the figures and masking the extent of the recession problem facing the continent. But whilst the Bundesbank has increased its estimate for 2012 growth, it has downgraded it for 2013 from 1.8% to 1.6%. 

We’re wouldn’t want to do any economist’s job for them, but it is beginning to look like an innovative plan of action is needed, and soon. Especially if Spain makes its rumoured plea to the EU tomorrow for a bailout package to save its banks…

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