EUROSTAT, the EU statistical agency, has reported a sharp slowdown in economic growth during the second quarter. Gross domestic product for the European Union as a whole grew at a quarterly rate of 0.2 per cent according to preliminary estimates from Eurostat. It was the weakest growth rate in two years and came after a 0.8 per cent expansion in the first three months of 2011. Economists were expecting growth to have slowed, with many projecting a 0.3 per cent rate in the quarter. Germany, the largest economy in Europe, nearly ground to a halt in the quarter.
The nation’s GDP grew at a quarterly rate of only 0.1, down from 1.3 per cent in the first quarter. France, the second largest EU economy did not grow at all in the second quarter.The weakness in Europe’s economic powerhouses raises concerns about the ability of stronger EU economies to support struggling members outside the core of the European Union.
In Europe, the decline in output came against a backdrop of turmoil, as the long-running debt crisis in Greece, Portugal and Ireland accelerated in the second quarter. Investors have been rattled by fears that larger economies, including Spain and Italy, may need to be bailed out. That has raised fears about the future viability of the 12-year old currency union. Meanwhile, the governments in Europe have been working to contain the continent’s sovereign debt problems and stabilize the euro. The European Council has announced a new 109 billion rescue package, and agreed to expand the powers of the EU financial stability fund.
European finance officials are stepping up their efforts to slow the rising panic over the euro zone’s debt crisis. Finance ministers from the G-7 — a group of significant world economies – have pledged support for troubled countries. In the face of renewed strains on financial markets, they have agreed to take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence. The European Central Bank signaled that it was ready to begin buying Italian and Spanish government bonds. Both countries — two of the largest economies in Europe — have been under pressure to speed up budget reforms as investors have demanded higher interest rates for loans.
The European banks are finding it increasingly harder to get cash they need to operate. Exactly three years after the collapse of Lehman Brothers touched off a credit panic, confidence in European leaders is fading as they scramble to head off a default on Greek debt and ease fears that Italy may head for the same fate. According to the International Monetary Fund, after a year and half of failed attempts at a solution, the world economy has entered a “dangerous new phase.” Without collective resolve, the confidence that the world so badly needs will not return.
Germany and France, the last hope of a European bailout, have seen their economies grind to a halt as the crisis widened. Investors have bailed out of European bank stocks, fearing they could lose large chunks of capital if governments default on the bonds they hold. Some bank stocks are now trading for less than half the reported value of the assets on their books, a sign that investors believe those assets will inevitably have to be written down. European leaders have been working for more than a year to assemble a financial backstop, similar to the response by the US Treasury and the Federal Reserve to the collapse of credit markets in 2008. Source:Dawn.com.pk