Figures released by the National Statistics Office have depicted that Germany’s economic growth in the second quarter has been slower than was predicted, growing by just 0.1%. Germany has recently began to thrive again, as it started to see positive results from it’s cost cutting and budgets. However, it is not just Germany who received disappointing results as the figures showed a reduced growth in the eurozone as a whole.
In the first three months of the year, the eurozone’s economic growth stood at 0.8% yet this quarter shows us a growth of just 0.2%. Similarly, Spain’s growth reduced from 0.3% in the first quarter to 0.2% between April and June. In contrast, Italy actually showed an increase in growth by 0.2% between the first and second quarters, a promising result.
These second quarter figures have come out prior to talks between Angela Merkel, German Chancellor and the French President Nicolas Sarkozy about how to best resolve the eurozone’s debt and prevent Spain and Italy from being swallowed by it also.
The situation in the eurozone has also had a negative backlash on the global stock markets, sending them into chaos. The turbulence in the market, caused by the uncertainty over the financial condition of the eurozone, appeared to be calming down on Monday after the European Central Bank announced it would buy debt from Italy and Spain. However, the release of these new second quarter figures appears to have caused another sharp fall in the markets today.
Germany’s disappointing second quarter growth figures have been said to be the result of an increase of imports and a reduction in household spending. It was thought that Germany might avoid negative effects from the eurozone’s slow economic growth however; these figures suggest that Germany is just as vulnerable as the rest of us which does little to boost confidence in lenders and investors.
It had been rumoured that the talks held by Mr Sarkozy and Mrs Merkel would involve discussions about the possibility of introducing Eurobonds. Eurobonds are the combination of the eurozone’s debt to be paid off evenly over all eurozone economies. This, it has been suggested, would be a highly effective means of containing the debt and lowering the interest rates for struggling eurozone countries. However, whilst Italy has expressed it would back this idea, Germany and France have denied that the possibility will even be discussed. Instead, they believe that struggling countries should impose stricter measures on cost cutting to recover from the debt.
This plan already seems to be underway with Italy announcing further strict cut backs last week and Spain declaring they will cut their spending even faster than initially expected.
The idea of quick and ruthless cost cutting throughout the eurozone has sparked concerns in some people however. Some economists have expressed fears that cutting so many costs so fast could result in another recession. For example, cutting thousands of jobs could result in the rapid reduction of consumer spending. Negative growth in the eurozone could be disastrous in terms of lending and investors as it would destabilize their confidence further.
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MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.