Recovery stalls in Europe as austerity grinds on - ECB needs to launch "shock and awe QE" to arrest slump in eurozone, says think tank

A young France fan watches from behind the French flag during the IRB Rugby World Cup Semi Final match at Stade de France, St Denis, France

France slipped back to zero growth and seems caught in a vicious circle Photo: PA

Across large swathes of the eurozone in the first quarter, dashing hopes of durable recovery and prompting demands for shock and awe action from the European Central Bank.

Finland fell into recession, while output contracted by 1.4pc in Holland, 0.7pc in Portugal and 0.1pc in Italy. “The recovery has vanished,” said Italian think tank Nomisma.

Bourses tumbled across Europe, with Milan’s MIB index down 3.6pc, led by a plunge in bank stocks. Madrid’s IBEX was off 2.35pc and France’s CAC fell 1.25pc, as investor dumped shares to buy bonds.

France slipped back to zero growth and seems caught in a vicious circle as it keeps cutting spending further to meet its EU deficit targets. The country’s hardline premier, Manuel Valls, has vowed to push through €50bn (£40bn) of spending cuts, with fiscal tightening of 0.8pc of GDP this year.

The country’s Observatoire Economique said the outlook was even more troubling than it looked. “France has seen a complete stagnation for the last 10 years, an unprecedented situation since the end of the Second World War,” it said. The body said fiscal cuts of 5pc of GDP from 2010 to 2013 had been premature and self-defeating.

The ECB has yet to offer stimulus to cushion the effects or to offset “passive tightening” from a strong euro and falling credit. Eurozone inflation was 0.7pc in April, with a bloc of countries already in outright deflation.

Michel Martinez, from Societe Generale, said the latest grim figures cried out for action, predicting a cut in interest rates to 0.05pc and a negative deposit rate of 0.1pc. He expects the ECB to buy €100bn of asset-backed securities later this year, with full-blown quantitative easing of up to €1.5 trillion in reserve if the recovery dries up altogether.

While the eurozone as a whole eked out growth of 0.2pc, this was largely due to Germany, where output surged by 0.8pc. The country is in a unique position, trading heavily with East Asia and benefiting from a chronically undervalued exchange rate within the EMU structure.

Spain racked up growth of 0.4pc, but this was due to a compression of imports and use of a “GDP deflator” of -0.4pc. Spanish exports fell 0.6pc. “This was a statistical mirage,” said Simon Tilford, from the Centre for European Reform.


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commented 2014-05-18 14:36:15 -0400 · Flag
Tom writes:

It is the same Riddle / Puzzle with Gold ? could someone please explain to
me how it is possible that AU is at USD1,300 in light of the Total State Sanctioned Monetary Debasement program I might be able to offer some reasons why EURO is 1.40

‘State’ intervention, i.e. rigged manipulated price levels by the Totalitarian Cartel’s – Whatever the hell that means in todays dysfunctional global Utopia ! Now be a good disciple: go up-date your facebook page, then telephone your 3rd world call center
to seek assistance with the latest electronic gadget acquired, No Thought Required.
commented 2014-05-18 14:34:23 -0400 · Flag
B.P. writes:

How a currency that has countries like Portugal, Spain, Italy, Greece, France, Holland, Finland as participants is not at parity or below parity to the Dollar…the Euro is even flimsier toilet paper than the Dollar…it has only one country in functional mode…one.

The countries mentioned above are BASKET CASES…some are Depression Era Catastrophes…the Euro is a FICTION…run by the Germans and their Central Bank…everyone else suffers and is dying on the vine! Entire generations are rotting away…this is an unreal scandal…yet the sheeple shuffle along as if everything is OK…pathetic…the Euro must drop precipitously if Europe is to have any chance at all of “recovery”…and several countries will/must exit…if they are to survive as sovereign entities.