Europe edges toward recession
EU economy shrinks in 2nd quarter
Associated Press
LONDON — Dragged down by crippling debts and flagging exports, Europe has edged closer to recession, raising calls for policymakers to intervene.
The economy of the 27-nation European Union shrank by a quarterly rate of 0.2 per- cent in the second quarter following a flat first quarter, statistics agency Eurostat said Tuesday.
Mindful that another quarterly drop would signal an official recession, analysts worldwide urged decisive action, particularly from the European Central Bank, to deal with the crippling debt crisis and restore confidence in the global economy.
“The ECB’s recent announcement that it will do ‘whatever it takes’ to save the euro is welcome, but clarity over what will be done is crucial,” said Tom Rogers, a senior economic adviser for accounting firm Ernst & Young.
Europe’s debt woes have been blamed for the sharp deterioration in the global economic outlook over the last few months. The United States is Europe’s biggest trade partner. A recession in Europe would de-
press U. S. exports and most likely wipe out related American jobs.
Record unemployment rates of 11.2 percent now burden the 17 nations that adopted the euro as their currency. Recession was forestalled only by growth in Germany and France, the continent’s two leading economies. Germany rose 0.3 percent in the latest quarter, while France was flat. Analysts expected a contraction. The European Union, home to 500 million people, recorded a GDP last year of $15.5 trillion — slightly more than the U.S.’s output. It also is a major source of sales for the world’s leading companies.
Forty percent of McDonald’s global revenue comes from Europe — more than it generates in the United States. General Motors, meanwhile, sold 1.7 million vehicles in Europe last year, a fifth of its worldwide sales.
But the region’s stumbling economy is making it harder for other economies to grow. Investors worldwide now are watching for European leaders to fight back. Options are reduced by the sluggish economy.
Germany’s biggest export market after the United States is its own neighbors. Six of them — Greece, Spain, Italy, Cyprus, Malta and Portugal — are in recession. The U. S. recently recorded flat growth in gross domestic product of 0.4 percent in the second quarter, which was less than the growth in the first quarter.
Slower economic growth also is making it harder for governments and central banks to control the debt crisis in Europe. Slower economies reduce tax revenue and force up the cost of social benefits.
“The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight,” said Jonathan Loynes, chief European economist at Capital Economics.
Greece and Portugal have received financial bailouts from the other eurozone countries and the International Monetary Fund, and were required to adopt tough austerity measures in return.
Italy and Spain, the eurozone’s third- and fourth-largest economies, shrank by 0.7 percent and 0.4 percent, respectively, in the second quarter. Both nations are struggling to convince markets they have a strategy to get a grip on their debts. Spain has agreed to bail out its banks.
Alexander Schumann, chief economist at The Association of German Chambers of Industry and Commerce, urged Europe’s indebted countries to carry on with their reforms and said it won’t be long before they start reaping the rewards.