Perilous
Times
Eurozone slips into double-dip recession
Paul Ames
February 24, 2012 - 9:39AM
The eurozone's double-dip recession is official.
Data released on Thursday by the European Union shows the
17-nation currency bloc's economy slumping into recession for the
second time in four years.
The official forecast of a 0.3 per cent contraction across the
eurozone in 2012 came as a grim confirmation of sovereign-debt
crisis' impact on the wider economy.
The EU's top finance official played down the gloomy statistics.
"Recent developments in survey data suggest that the expected
slowdown will be mild and temporary," Olli Rehn, the EU's economic
affairs commissioner said in Brussels. "With decisive action, we
can turn the corner and move from stabilisation to boosting growth
and jobs."
There are a few hopeful signs.
Spain, Italy, Ireland and lately Portugal have all seen pressure
from bond markets ease thanks to European Central Bank action and
reforms pushed though by their governments. Fears of a major
credit crunch have not materialised and there are tentative
indications that business sentiment is picking up.
However, the data makes clear Europe's economy remains on a
knife-edge.
Greece is still a clear and present danger. The new forecasts show
it has the euro-zone's worst economic figures for the third year
running - a 4.4 per cent shrinkage seen this year. In total, the
Greek economy has contracted by more than 18 per cent over the
past five years.
Any guarded optimism relies on Greece sticking to Monday's deal
that sees it receive a new 130 billion-euro ($A163.01 billion)
bailout in return for reforms to bring down its massive debt.
Yet doubts remain about Greek politicians' ability to keep the
country on its austerity path and any backsliding would quickly
rekindle fears of a messy default that would shake the foundations
of the eurozone.
Other troubled southern nations are all seen in recession this
year, Portugal with a 3.3 per cent contraction, Italy at 1.3 per
cent and Spain at 1 per cent.
Those numbers are sharpening debate about whether the austerity
track mandated by German Chancellor Angela Merkel is the right way
to get the European economy growing.
This week the leaders of 12 EU nations - Germany not included -
appealed for next week's European summit to launch new pro-growth
policies such as removing remaining barriers to trade within the
EU.
Meanwhile, the president of the European Central Bank warned
against using recession as an excuse for any slackening of the
drive to bring down debt.
"Fiscal consolidation is unavoidable in the present set up and it
buys time needed for the structural reforms," Mario Draghi, said
on Thursday in a Wall Street Journal interview.
"Backtracking on fiscal targets would elicit an immediate reaction
by the market."