Europe in crisis talks as German economy grows
Thursday, 12 January 2012
PARIS, Jan 11 (AFP): European leaders and the IMF chief headed into fresh talks on the eurozone Wednesday as new data showed the German economy was able to grow robustly last year despite the drag of the debt crisis.
IMF head Christine Lagarde began talks with French President Nicolas Sarkozy after France received some rare good news Tuesday with an assurance from ratings agency Fitch that it would not downgrade French debt this year.
After meetings this week with Sarkozy and Lagarde, German Chancellor Angela Merkel was to hold talks in Berlin later Wednesday with Italian Prime Minister Mario Monti, as part of a flurry of German diplomatic action on the crisis.
Strengthening Merkel's hand in her effort to promote fiscal responsibility, data showed Wednesday that the German economy, Europe's biggest, remained the powerhouse and one of the few bright spots in the eurozone.
German gross domestic product (GDP) expanded 3.0 per cent in 2011, compared with record growth of 3.7 per cent the previous year, even though the eurozone crisis began to crimp growth in the fourth quarter, official data showed.
The strong performance enabled Germany to bring down its public deficit to just 1.0 per cent of GDP last year from 4.3 per cent a year earlier.
Germany also paid a record low rate at an auction of five-year bonds on Wednesday amid huge demand, suggesting nervous investors are flocking to the safe haven of Europe's top economy.
It received bids for nearly nine billion euros ($11 billion) for the four billion euros of its five-year bond on offer, with an average yield of just 0.90 per cent.
Elsewhere in the 17-nation eurozone, however, prospects were less rosy.
The European Union revised downwards its figure for eurozone growth over the third quarter of last year, to 0.1 per cent.
The previous figure given was 0.2 per cent but detailed EU data showed a drop on France's previously published growth rate between July and September, from 0.4 per cent to 0.3 per cent, which caused the revision.
Economists are watching closely to see if the first estimate for the all-important final three months of 2011 shows the eurozone dipping into recession.
Data also showed Wednesday that eurozone banks stashed a record sum with the European Central Bank, suggesting tensions in the financial system remain despite huge injections of cash.
Banks parked 485.9 billion euros with the Frankfurt-based ECB on deposit for 24 hours, beating the record set the previous day.
The phenomenon is especially significant because it comes after eurozone banks borrowed nearly half a trillion euros from the ECB last month in a brand-new three-year lending facility.
Ahead of his talks with Merkel, Monti made it clear that he believed Italy deserved more than just a scolding from Germany.
"Unfortunately, we have to say that our reform policies have not received the recognition and appreciation in Europe that they deserve," Monti told German daily Die Welt.
"If the Italian people do not soon see tangible success for their savings and reform efforts, there will be a protest against Europe, against Germany-seen as the driver of EU intolerance-and against the ECB," he added.
Monti came to power in November at the head of an unelected government of technocrats after a wave of financial market panic and a parliamentary revolt forced the resignation of scandal-hit Silvio Berlusconi.
Monti has pushed through a crushing austerity plan in an attempt to fix the nation's problems.
IMF head Christine Lagarde began talks with French President Nicolas Sarkozy after France received some rare good news Tuesday with an assurance from ratings agency Fitch that it would not downgrade French debt this year.
After meetings this week with Sarkozy and Lagarde, German Chancellor Angela Merkel was to hold talks in Berlin later Wednesday with Italian Prime Minister Mario Monti, as part of a flurry of German diplomatic action on the crisis.
Strengthening Merkel's hand in her effort to promote fiscal responsibility, data showed Wednesday that the German economy, Europe's biggest, remained the powerhouse and one of the few bright spots in the eurozone.
German gross domestic product (GDP) expanded 3.0 per cent in 2011, compared with record growth of 3.7 per cent the previous year, even though the eurozone crisis began to crimp growth in the fourth quarter, official data showed.
The strong performance enabled Germany to bring down its public deficit to just 1.0 per cent of GDP last year from 4.3 per cent a year earlier.
Germany also paid a record low rate at an auction of five-year bonds on Wednesday amid huge demand, suggesting nervous investors are flocking to the safe haven of Europe's top economy.
It received bids for nearly nine billion euros ($11 billion) for the four billion euros of its five-year bond on offer, with an average yield of just 0.90 per cent.
Elsewhere in the 17-nation eurozone, however, prospects were less rosy.
The European Union revised downwards its figure for eurozone growth over the third quarter of last year, to 0.1 per cent.
The previous figure given was 0.2 per cent but detailed EU data showed a drop on France's previously published growth rate between July and September, from 0.4 per cent to 0.3 per cent, which caused the revision.
Economists are watching closely to see if the first estimate for the all-important final three months of 2011 shows the eurozone dipping into recession.
Data also showed Wednesday that eurozone banks stashed a record sum with the European Central Bank, suggesting tensions in the financial system remain despite huge injections of cash.
Banks parked 485.9 billion euros with the Frankfurt-based ECB on deposit for 24 hours, beating the record set the previous day.
The phenomenon is especially significant because it comes after eurozone banks borrowed nearly half a trillion euros from the ECB last month in a brand-new three-year lending facility.
Ahead of his talks with Merkel, Monti made it clear that he believed Italy deserved more than just a scolding from Germany.
"Unfortunately, we have to say that our reform policies have not received the recognition and appreciation in Europe that they deserve," Monti told German daily Die Welt.
"If the Italian people do not soon see tangible success for their savings and reform efforts, there will be a protest against Europe, against Germany-seen as the driver of EU intolerance-and against the ECB," he added.
Monti came to power in November at the head of an unelected government of technocrats after a wave of financial market panic and a parliamentary revolt forced the resignation of scandal-hit Silvio Berlusconi.
Monti has pushed through a crushing austerity plan in an attempt to fix the nation's problems.