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European Commission: Eurozone faces deeper recession in 2012

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A self-made euro sign is attached to the tip of a christmas tree in front of the European Central Bank (ECB) in Frankfurt am Main, western Germany.

European Commission has predicted that the eurozone currency bloc faces a deeper recession than previously anticipated, with a 0.3 percent contraction in its GDP now tipped for 2012.

The commission previous forecast in November said the economic output in the 17 nations sharing the euro would grow by 0.5 percent this year.

“The unexpected stalling of the recovery in late 2011 is set to extend into the first two quarters of 2012,” the Commission said on Thursday.

Meanwhile, economy of the wider, 27-nation European Union, which generates a fifth of global output, would be unchanged in 2012 with 0 percent growth, according to the Commission forecast.

The eurozone economy is heading into its second recession in just three years. The bloc last recession was in 2009, when its economy contracted 4.3 percent during the deepest global economic crisis since the 1930s.

A poisonous mix of high public debt, evaporating investor and business confidence and rising unemployment killed off the two-year recovery from the global financial crisis, economists say.

The currency bloc is facing daunting challenges as a result of a poisonous mix of high public debt, disappearing investor and business confidence and rising unemployment in number of its members.

The debt crisis has forced EU governments to adopt harsh austerity measures and tough economic reforms. The new forecasts will add to concerns about the impact of austerity plans.

The 2012 forecasts for Italy, Spain and Greece were all slashed-each of them countries that are applying significant fiscal consolidation.

Europe plunged into financial crisis in early 2010.

Insolvency now threatens heavily debt-ridden countries such as Greece, Portugal, Italy, Ireland and Spain.


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  • Steve

    One fears that Italy has had its come-uppance. Way back in February 1997, in the run-up to the launch of the single currency, its then prime minister, Romano Prodi, went to Germany and rather rashly said: “We see our future in Europe. I don’t know if that is the case in Germany.” He even added: “Last year Germany was a model. This year Germany is a disaster. I would expect stronger leadership from Germany.”
    The Flowers that Launched the Euro … To mark the anniversary of the arrival of the euro in the form of notes and coins, euronews spoke with Romano Prodi, who in 2002 was President of the European Commission …. Prodi: “Well, the difficult moments were predictable. When we created the euro, my objection, as an economist (and I talked about it with Kohl and with all the heads of government) was: how can we have a common currency without shared financial, economical and political pillars? The wise answer was: for the moment we’ve made this leap forward. The rest will follow … Then instead came the Europe of fear: fear of China, fear of immigrants, fear of globalisation. So it was clear that this crisis would arrive. But the euro is so important, it’s so convenient for everyone — especially Germany — that I’ve no doubt that the euro won’t just survive, but it will be one of the landmarks for the world economy.”
    As things stand now, you can’t really peg, as Alexander says, the PIIGS to the Euro because that is like pegging them to a gold standard. They would have a better chance at it if they were using their own currencies. They may not be able to afford buying stuff from Germany, but they would give the Germans a great vacation for the money!

    So, I look at the Eurozone as being very predatory. The lending came from the big banks in the north. The PIIGS are like homeowners in the US, up to their eyeballs in debt. Homeowners in the US with any sense walk away from their toxic loans. Time the PIIGS did the same thing.

    If the Eurozone cannot afford their highly leveraged banks then I admit this is a big problem! Each country will probably have to take each bank’s insolvency as they arise.

    But the issue is the union. It appears that Germany and France are being predatory in threatening no bailouts for the PIIGS but rather a focus on the banks. That is like the US government bailing out the banks but not the homeowners. That ruins trust in the banking system. If banks from one country to the next cannot trust each other, how can these countries trust each other?

    The Eurozone was a conspiracy to attempt the impossible, or it is just like our bank problems, a big scam. The bankers made the money for their handlers who are living it up. All the while, the politicians are trying to fix a leaky faucet with a screwdriver. Alexander doesn’t think they have the tools either.

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