Contagion could fracture the eurozone

The Guardian: "Somehow you always sensed that it was tempting fate when the German finance minister, Peer Steinbrück, said last month that the credit crunch was an American matter. How long would it be before the contagion that knocked the stuffing out of Wall Street and the City would claim a eurozone bank or two?

Well, the hubristic words were barely out of Steinbrück's mouth before we had our answer. The Belgians and the Dutch bailed out Fortis bank; the Irish made a blanket guarantee on deposits amid fears that at least one, and probably two, of their big banks were about to go belly up.

Steinbrück's musings on whether the US was losing its status as the world's economic hegemon were interrupted by the need to seek approval from Brussels for the ill-fated €35bn (£27bn) rescue of Germany's Hypo Real Estate banking group. And by the weekend the leaders of Europe's big four - Germany, France, Italy and Britain - were calling for an emergency global summit next month. A lesson for finance ministers: try not to anger the gods."

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Europe Cannot Escape

Image via WikipediaContagion could fracture the eurozone: "The week's events have challenged the smug notion that the credit crunch is a purely Anglo-Saxon affair. A glance around Europe shows this is far from the truth: from Iceland to Greece, there are signs of acute stress accentuated by the same marked slowdown as in the UK.

France's quarterly growth rate slowed from 0.7% in the third quarter of last year to 0.4% in each of the next two quarters, then went negative by 0.3% in quarter two of this year. Christine Lagarde, finance minister, expects GDP to contract again in the third quarter. This is technically a recession: two consecutive quarters of falling output.

Italy has performed even less well. GDP fell in both the fourth quarter of 2007 and the second quarter of this year, dragging the already anaemic annual growth rate down to zero. In France it is 1.1% and in Britain 1.4%. Germany has been the best performing of Europe's big four economies, but it too is slowing as demand for its exports is affected by the global slowdown. Germany's output fell by 0.5% in the second quarter, pulling its annual growth rate down to 1.7%.

By comparison, annual growth in the US is 2.2%, although the strong performance in the second quarter was due to a one-off $150bn (£85bn) tax cut, and the economy now appears to be slowing fast."

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