November 11, 2011
The European Commission last night released figures that showed the economic recovery in the region had stopped, with warnings that the region was likely to slip into a recession next year.
"For now the outlook for the European economy is unfortunately gloomy," said Olli Rehn, the European commissioner for economic and monetary affairs.
"Growth has stalled in Europe and there is a risk of a new recession".
Economic growth for the whole of the region is forecast at just 0.5 per cent for 2012, while growth is tipped at a modest 1.5 per cent for 2013. The figures were contained in the EU's twice yearly economic outlook.
The European Union ranks as Australia's third biggest trading partner and any slowdown there threatens to pull down the global economy.
The figures were released as Italy successfully sold €5 billion of one year bonds overnight.
While the price investors charged for the bonds were high, the yield fell below the critical 7 per cent level where Italy's longer dated bonds rose to yesterday.
The yield on the one year bonds came in at 6.09 per cent, compared to a 3.57 per cent yield on one year bonds sold last month.
The Italian Parliament is expected to rush through a vote to pass a package of austerity measures, which include plans for sales of state assets and increasing the retirement age, and at that point Silvio Berlusconi has pledged to resign as prime minister and then a transitional government would take charge to push through reforms.
Mr Rehn meanwhile said it was essential for Italy to reach "political stability and capacity of decision making" in order to curb market fears.
From there Italy will then be in a position to achieve fiscal targets and structural reforms.
"These are the necessary conditions for restoring confidence," Mr Rehn said.
The European Commission forecast that Italian public debt would remain unchanged at 120 per cent of GDP next year, before easing to 118.7 per cent in 2013.
Greece, meanwhile, will see its public debt rise to 162.8 percent of GDP this year from 144.9 percent in 2010.
This is forecast to rise to a hefty 198.3 percent of GDP next year.
Greece, with the help of eurozone leaders, has negotiated a debt reduction deal with private investors of 50 per cent, however the details of the package are yet to be worked out.
Article by Eric Johnston in Brussels for TheAge