Eurozone trapped in austerity-led recession

15th May 2013, Comments 0 comments

The dogged recession across the eurozone has snared key economy France, with the latest EU figures released Wednesday showing a full year-and-a-half of contraction as tens of millions languish in unemployment.

In Brussels, French President Francois Hollande tipped 'zero' growth on the national level, blaming an EU-wide, German-led austerity trap -- and hitting out at banks for holding back on lending as he and fellow leaders battle to unlock taxable assets hidden in offshore bank vaults or breathe life into training programmes for Europe's disillusioned youth.

Despite those efforts, the eurozone as a whole is already firmly entrenched as the global economy's "weakest link", according to Dutch-based ING analysts.

Seven days from another tense summit of EU leaders, official figures showed a 0.2 percent contraction between January and March, in the longest recession since the single currency bloc was established in 1999.

EU data agency Eurostat said output across the 17 states that share the euro -- which are home to 340 million people -- fell by 1.0 percent drop compared to the same quarter last year.

France notably slid into recession with a 0.2 percent quarter-on-quarter contraction, with unemployment already running at a 16-year high.

While core economy Germany clambered out of negative territory with 0.1-percent growth after a 0.7-percent slide at the end of 2012, both Italy and Spain posted 0.5-percent drops, the figures also showed.

Hollande, in town for a donors conference on Mali and a meeting with European Commission head Jose Manuel Barroso, blamed the reversal on "the accumulation of austerity politics" and a "lack of liquidity" within the banking sector leading to a euro-wide loss of confidence.

Fresh from winning France a two-year period of grace from the Commission to bring its public finances back within previously-understood EU targets, Hollande argued that nascent plans to divert state and private investment towards projects intended to get Europe's youth working would make a difference.

He said Europe now had to show the same determination to boost growth that it had in bringing down deficits over recent years.

A spokesman for the German economy ministry maintained that Europe was "through the economic trough," even as Newedge Strategy analyst Annalisa Piazza mocked "anaemic" growth and top Berenberg Bank economist Christian Schulz said Germany "will have to rely on domestic demand for growth this year."

Following a string of disappointing survey results in recent weeks, Ben May of London-based Capital Economics warned: "We doubt that the region is about to embark on a sustained recovery any time soon."

The latest official European Commission forecast for 2013 published earlier this month tipped a 0.4-percent contraction, but May said that was way off course with "something closer to a two-percent decline" likely.

His firm's pessimism was backed by Howard Archer of fellow London-based specialist analysts, IHS Global Insight.

"We expect the eurozone to suffer gross domestic product (GDP) contraction of 0.7 percent in 2013 with very gradual recovery only starting in the latter months of the year," said Archer.

"Today's GDP figures once again show that the eurozone remains the weakest link in the world economy," added the ING analyst Peter Vanden Houte, though "a subdued recovery in the second half of the year is still possible."

But for that to happen, it would be "imperative that eurozone leaders maintain the momentum in the strengthening of the monetary union, with the banking union as a first important hurdle to be taken."

The ING expert tipped action by the European Central Bank to boost lending to small businesses.

No figures were given for growth in Ireland which, among the bailout economies, appeared to have turned the corner in the previous quarter with flat instead of negative growth.

However, Cyprus, at negative 1.3 percent, can expect a sharp deterioration later, given that the figure was for the period prior to bailout negotiations that saw banks in lockdown for a fortnight.

© 2013 AFP

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