Plagued by declining exports and beset by the sovereign debt crises, European growth could come to a virtual “standstill” by the end of the year, warned European Commission’s top economic official Olli Rehn.
Speaking to journalists here on Thursday, Rehn who is the EC’s economic and monitory commissioner admitted that the outlook for the European economy had “deteriorated”. “The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy.” Growth projections for the European Union are now at 0.2 per cent in both the third and fourth quarter, revised down by 0.2 and 0.3 percentage points, respectively. For the 17-country euro zone, growth is forecast at 0.2 per cent in the third and 0.1 per cent in the fourth quarter — revised down by 0.2 and 0.3 percentage points, respectively.
The commission also released the growth prospects for Europe’s top seven economies. Export heavyweight Germany is the only country for which the forecast improved, with a projected growth of 2.9 per cent this year — up from the 2.6 per cent predicted in May. France – whose banks have been under troubling scrutiny in recent days with credit rating agency Moody’s downgrading Société Générale and Crédit Agricole on Wednesday – was expected to inch up by 1.6 instead of the 1.8 per cent predicted earlier.
Italy, where street protests broke out on Thursday following the announcement of new austerity measures by Rome, had its forecast revised down to 0.7 per cent from 1.0 per cent. The UK, which does not belong to the euro zone, also saw its growth forecast cut to 1.2 per cent, down from 1.7 per cent.
In another attempt to calm markets, France and Germany reiterated that Greece, the country in the eye of the fiscal storm, remained an “integral” part of the single currency.
French President Nicolas Sarkozy, German Chancellor Angela Merkel and Greek Prime Minister George Papandreou held an emergency phone summit late yesterday evening.
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Following which they claimed that the additional austerity measures Athens announced recently would ensure that the country achieved its financial targets. Their joint statement gave a boost to stock markets in Europe. Greece is set to receive the next loan from its initial EU and IMF bailout later this month, but only if inspectors from the EU, European Central Bank and IMF agree that it is keeping up with its spending cut targets.
Without this month’s loan, Greece will not be able to meet its debt payments by the middle of next month. Merkel’s and Sarkozy’s backed signals that the next tranche of aid will likely be paid out in time.