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Euro zone slips into double-dip recession

New grim economic data bolsters calls for more growth measures over austerity.

Eu recession 2012 02 23Enlarge
A familiar scene in Athens. (LOUISA GOULIAMAKI/AFP/Getty Images)

ROME — The eurozone's double-dip recession is official.

Data released 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 percent 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.

Read more: EU leaders split on growth versus austerity

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 materialized 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 percent shrinkage seen this year. In total, the Greek economy has contracted by more than 18 percent 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 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 percent contraction, Italy at 1.3 percent and Spain at 1 percent.

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 Thursday in a Wall Street Journal interview. “Backtracking on fiscal targets would elicit an immediate reaction by the market.” 

http://www.globalpost.com/dispatch/news/regions/europe/120223/euro-zone-slips-double-dip-recession-debt-crisis