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ORIGINAL FRENCH ARTICLE: La zone euro dans le noir aussi

by Pierre Ivorra

The Euro Zone Also In the Doldrums

Translated Saturday 17 December 2011, by Isabelle Métral and reviewed by Henry Crapo

The French national institute for economic statistics [INSEE] shows the South drowning, Germany going down, and the banks getting short of breath. The only way out: to bypass the financial markets.

According to the Institute’s scenario based on the current economic circumstances, the euro zone should also dip into recession during this fourth term, with growth falling steadily into the first term of 2012 and stagnating in the second. One of the most striking features is the gap between the euro zone and the rest of the world. The Institute notes that whereas in the fourth term of 2012 Western Europe will be sinking into recession, notably because ’budgetary policies will still be shrinking’, the US economy is still growing ’at nearly the same rate as in the third term.’ The Institute predicts the same growth pattern for Japan, and a slowing down of growth in emerging countries. At the start of 2012 the US and Japan ’should be only lightly hit by the turbulences in the euro zone.’

Western Europe is therefore the most ailing area in the world. Even Germany should be affected. Economic growth in France’s neighbouring partner looks to shrink by 0.2% in the fourth term of 2011, stagnate in the first term of 2012, and slightly rebound - by 0,2% - in the third term.

But the most striking prediction in the INSEE scenario is the sinking into recession of EU Southern countries, with Spain and Italy already in recession in this fourth term through the second semester of 2012 without any rebound in the second term. This emphasizes the other striking element in the INSEE prospective scenario, namely the widening gap between North and South in the EU - together with the attending risks of the zone’s imploding - namely gaps between growth, unemployment and government-bond rates. Thus Greece’s unemployment rate in the third term of 2011, as made known yesterday, is at 17.7% as compared with 12.4% a year before. The rates for Spanish ten-year government-bonds rose from 5.443 to 5.545 %. But the gaps between France and Germany are also widening.

This situation gives the lie to the statement of the ECB’s president Mario Draghi who presented the conclusions of the 2-3 December summit as ’advances towards clear budgetary rules in our monetary union’ that remain to be ’quickly implemented’. EU President Herman Van Rompuy himself announced that the next EU summit will take place some time between late January and early February next year to tackle the issues of the debt crisis and competitiveness and employment within the Union.

Enough to keep them busy indeed!

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