Welcome to eurozone recession - we could be here for some time
by Dean Carroll
The eurozone will enter into recession this year with the economy contracting by 0.3 per cent across 2012, the European Commission forecast today. In the last set of predictions in November of last year, officials claimed that the economy would grow by 0.5 per cent in 2012. But the commission has now claimed that the "stalled recovery", which occurred in the last two quarters of 2011, could extend into the first half of 2012 – in what it suggested would be a "mild recession", followed by a period of stability.
Greece, one of the biggest drains on the single currency finances, was expected to see a contraction of 4.4 per cent – the commission revealed. Portugal was also flagged up as a member state that could witness significant economic decline – while Belgium, Spain, Italy, Cyprus, the Netherlands and Slovenia also likely to experience problems. Commission vice-president for economic and monetary affairs Olli Rehn said: "Although growth has stalled, we are seeing signs of stabilisation in the European economy. Economic sentiment is still at low levels, but stress in financial markets is easing. Many of the steps that were essential to deliver financial stability and to establish the conditions for more sustainable growth and job creation have now been taken. With decisive action, we can turn the corner and move from stabilisation to boosting growth and jobs."
Responding to the grim forecast, managing director at the Re-Define think-tank Sony Kapoor claimed the figures were proof that the European Union was wrong to focus on austerity and fiscal consolidation at a time when economic growth was required to navigate a way out of the crisis. Putting the case for further fiscal stimulus packages and intervention from the European Central Bank, Kapoor said: "The sharply deteriorating economic forecasts underscore why despite the lull arising from a quietening of the acute phase of the crisis, EU policy-makers must not be allowed to procrastinate and become complacent; a pattern that has characterised decision-making from the start of the crisis."
"Predictions of a euro-area wide recession, it seems, are coming true; the banking system remains on life support; the politics remain as fraught as ever and the social fabric is being stretched to its limit. Consumer demand is shrinking as public spending and wages are cut. With low confidence that is not conducive to stimulating private investment and a possibility of only marginally higher exports in the short-term, this will arithmetically shrink the gross domestic product worsening the debt-GDP ratio even without the impacts of lower tax revenues and a higher demand for social insurance being accounted for. The ECB, having done the heavy lifting in recent months, is still refusing to cross the red line of direct sovereign support. The actions of EU policy-makers, the difficult and controversial decisions on bailouts, conditionality and austerity - which have been poorly communicated - are all leaving a scar on the European psyche which could take years to remove."
The eurozone never had more than a sporting chance
If there had not been a global economic crisis all might have been well, in time. But the national markets within the single market showed their different degrees of resilience to the shocks which hit them – and the eurozone became an incipient transfer union – writes our secret columnist
The recession could not only stay here for some time, but it could get even worse. If you read the analysis of the European Commission, the downside risks are great. Especially for Greece, Italy, Spain and - yes - the Netherlands. To stop this negative trend, there a new talks about a growth initiative. But I doubt it will help.
E. Bonse - Brussels