Growth wilted 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.
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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.
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Prof Charles Wyplosz, from Geneva University, said the relapse should not be a surprise. “Austerity has been reduced but it has not stopped. Countries are still being told to reduce their deficits and they should not be doing that right now,” he said.
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.
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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.
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“We are not seeing real recovery anywhere apart from Germany, and the picture becomes more troubling the more you drill into it. Nominal GDP growth is very weak, so we’re going to see a significant rise in debt rations,” he said. “We think it is highly unlikely that the ECB will launch the kind of shock and awe QE needed to convince the markets that they are really going to stay the distance,” he said.
Full article: Recovery stalls in Europe as austerity grinds on (The Telegraph)
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