Recession fears grip eurozone as output falters

Telegraph ^ | 03/15/04 | Ambrose Evans-Pritchard

[Pikamax]

Recession fears grip eurozone as output falters By Ambrose Evans-Pritchard in Brussels (Filed: 15/03/2004)

The eurozone is on economic alert this week after a clutch of dismal figures from France and Germany heightened fears of a slide back into recession.

French industrial production slumped 0.5pc in January, confounding predictions of robust growth as the US-led recovery gathers pace worldwide. German output slipped 0.1pc, prompting a gloomy warning from Bundesbank chief Ernst Welteke. "The risks of an economic deterioration are definitely greater than the chances of improvement in Europe and Germany," he said.

After facing the full brunt of dollar devaluation, the eurozone now appears to be languishing again as America, Japan, China and India power ahead.

Major banks are now scrambling to revise their forecasts for the euro-dollar exchange rate over the next three months. Morgan Stanley cut its June estimate from $1.25 to $1.19. Bank of America's John Rothfield said: "We are at the beginning of the end of the euro's advance."

Roger Fauroux, France's former Inspector of Finances, said his country was in a "catastrophic" state and would have faced a currency crisis already if it had not been for the euro. He described currency union as a double-edged sword that jams the warning mechanisms and shields the economy from the discipline of market forces, allowing problems to fester.

"Without the euro, our fiscal policy would have forced us to devalue three times by now. France is protected by the euro umbrella so we don't have to worry about the pressure of vanishing reserves. But our fiscal policy is just as irresponsible as it was in 1981 (under Mitterrand), without the benefit of inflation eroding the debt," he said.

He feared that the French deficit would mushroom to 7pc of GDP by 2007 unless growth picked up soon. It was 4.1pc last year, smashing through the 3pc limit of the EU's stability pact.

But Brussels is more immediately concerned about the high debts of Italy, Greece and Portugal, fearing the markets could demand a greater risk premium on government bonds now that the fiscal rules underpinning the euro has collapsed.

The European Central Bank is unlikely to come to the rescue soon with a sharp cut in interest rates, despite vociferous demands from France and Germany. ECB's March report warned that M3 money supply growth was too high.

[Peach]

No, no, it can't be. We're told repeatedly that taxing citizens MORE will create jobs and improve the economy. Snicker.

[Longbow1969]

You'd think it would finally occur to Europeans that their cherished socialist utopia is an utter failure.

Then again, you'd also think that Europeans would recognize that constant appeasment in the face of aggressors is also a policy doomed to failure.

Apparently, Europeans have learned nothing over the decades.

Longbow

[An.American.Expatriate]

But Brussels is more immediately concerned about the high debts of Italy, Greece and Portugal, fearing the markets could demand a greater risk premium on government bonds now that the fiscal rules underpinning the euro has collapsed.

And the collapse of the fiscal rules was forced by none other the Germany!! And Brussels is concerned about Italy, Greece and Portugal??

[antiRepublicrat]

And the collapse of the fiscal rules was forced by none other the Germany!!

The funny thing is that Germany made up that rule. Oops.

[Iscool]

I would suspect they do a lot of "free trading" with China and India...

[Lael]

I trust Ambrose Evans-Pritchard on this. He is a great American.

Hey, nothing snide about Ambrose Evan-Pritchard!

I'm still looking for his "The Secret Life of Bill Clinton" in the Mother of ALL SPRING CLEANUPS!.

When he left the USA, he had been living for about two years with a "contract", something he vaguely refers to while writing from the safety of "the Weald of Kent".