Fragility Of The Eurozone Recovery Exposed

By: Mike Campbell

Eurostat, the arm of the European Commission charged with providing statistical analysis of the European Union, has just released revised figures for the growth of the 16 Eurozone nations which share the Euro for Q4 2009. The data suggests that growth within the zone was at zero during this period, reversing a previous estimate that claimed the Eurozone had grown by just 0.1%. Consequently, the year-on-year figure has also changed and indicates that the Eurozone economy contracted by 2.2% during 2009.

The Organisation for Economic Cooperation and Development (OECD) have predicted that first quarter growth in the G7 will slow from the 3.7% level seen in Q4 2009 to 1.9% in this quarter, picking up to 2.3% in Q2. OECD cautioned that nations must take steps to reduce their debt burden before changing interest rate policy. They also believe that Greece should be able to solve its problems without recourse to help from the Eurozone. They stated that the debt reduction measures should start next year, or this year, where needed; presumably a reference to Greece, Spain and Portugal. OECD suggested that the current low value of the Euro is helping Eurozone exports to the rest of the world. The OECD also pointed to the relatively low value of the Chinese Yuan as an impediment to global growth.

No doubt US Treasury Secretary Timothy Geithner will have approved of the OECD comment about the Yuan. Geithner is expected to talk to Chinese Vice-Premier, Wang Qishan in Beijing on Thursday about US concerns over the valuation of the Chinese currency. The subject is also likely to be aired by the two men’s bosses when the Presidents of China and the USA meet on the sidelines of next week’s nuclear non-proliferation meeting in Washington.