Economic divisions emerge across Europe as recession bites

Monday, 30 March 2009, 02:59 Hrs
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Berlin: European leaders travel to London next week for the Group of 20 (G20) summit as signs emerge that the global recession has caused new economic dividing lines to form across Europe.

Indeed, the summit of the world's major economies in the British capital's new trade centre comes amid a continuing stream of disastrous data and plunging economic indicators.

With unemployment queues lengthening, export markets shrinking, retail and office building occupancy rates falling, economic sentiment plummeting, order books collapsing and companies slashing production, fears have been growing that Europe could be facing up to a protracted economic slump.

Last week, workers turned out in large numbers in France to protest over the government's handling of the crisis and to demand the roll back of French President Nicolas Sarkozy's economic reform plans. The demonstrations highlighted the deepening disquiet in the nation and across Europe about the crisis.

"We could see a further economic contraction well into the year," said Dresdner Kleinwort senior economist Rainer Guntermann. Meanwhile, US President Barack Obama's White House was spearheading a drive ahead of the summit for public more money to be thrown at the economic crisis.

But the European G20 members - among them Germany, Italy and France - are likely to rebuff calls to pony up more money to help contain the fallout from the world economy's biggest downturn in 60 years.

Instead, they have been arguing that the summit's effort should be aimed at forging a new global financial regulatory system.

Holding the European Union's sixth month rotating presidency, the Czech Republic is also attending the G20 summit.

Germany and France insist that the raft of fiscal stimulus packages already introduced across Europe need time to kick in, and the two countries have moved to draw their European partners behind them to oppose more public spending to bolster economic growth.

In doing so, they also managed to paper over differences within Europe about how to contain the fallout from the recession.

Indeed, while Europe has been taking a pounding in the current economic climate, the dramatic global slump has had a different impact on parts of Europe and prompted marked economic divisions between nations.

In particular, Spain and Ireland along with the countries in Central and Eastern Europe (CEE) appear to have taken the full force of the global economic firestorm that came during the final months of last year after it was first unleashed by a US mortgage market meltdown.

At 13.9 percent, unemployment in Spain is already the highest in the European Union. Some forecasters predicted it could hit 20 percent by the end of the year, after the nation's housing market went bust and ended a key driving force behind growth.

The economy in Ireland, like Spain part of the 16-member eurozone, could shrink by more than six percent this year, the nation's central bank has warned. Tax revenue in the country plummeted by 24 percent during the first two months of the year.

At the same time, the CEE region - about to mark the 20th anniversary of the implosion of communism - is facing its biggest economic crisis since it abandoned Stalinist-style command economies and embarked on the road to a western free market model.

The economy of British Prime Minister Gordon Brown, the G20-summit host, has been suffering from an especially harsh slowdown in the wake of the collapse of the country's housing market, with January unemployment breaching the key 2-million mark to hit its highest level in a dozen years.

After tearing up its previous forecasts, the International Monetary Fund (IMF) said last week that the 16 countries sharing the euro will contract by 3.2 percent this year, while Britain is expected to contract by 3.8 percent.

What is more, the IMF said that Britain would face an uphill battle to haul itself out of recession and be the only economy in the world to keep shrinking in 2010.

But despite the slew of horrific economic data, key forward-looking indicators have been pointing to a turnaround in the eurozone economy, as the year unfolds with colossal fiscal stimulus packages launched across Europe and a round of hefty global interest cuts helping to spur growth.

What is more, Europe's major economies also hope that the expectations of a pickup in the economy later this year will mean they can avoid bailing out European states that currently appear at risk of being engulfed by the major economic shakeout.

Amid signs of mounting pressure on the banking system, plummeting foreign investment and surging unemployment, the economic crisis has prompted a new fault line across the CEE.

As recession has tightened its grip, in particular, the economies in Hungary, Romania, Ukraine and the Baltic states have been taking a bigger hit than other nations in the region.
Source: IANS
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