Euro Bloc Woes

The downward spiral in the Euro bloc economies continues.

The euro zone's largest economy, Germany, has slashed its growth forecasts for this year and next, citing a weak global economy amid a series of international crises. This latest gloomy economic data out from Germany comes following a raft of recent downbeat news. The forecast in declining economic activity is anything but moderate. The economy is now forecast to grow this year to 1.2% from an earlier forecast of 1.8% and just 1.3 percent for 2015, according to the latest data from the economic and energy ministry.

"The German economy is in choppy waters concerning foreign trade," Sigmar Gabriel, minister for economics and energy, said in a statement.

The market had already anticipated a revised down in the bloc's largest economy after the economics minister warned in a radio interview in late September that growth could come in below the earlier 1.8% forecast, given the tensions between Russia and Ukraine. However, on a more upbeat note foreign trade minister Gabriel said that better growth figures next year could be achieved if international factors improve and he added that Germany's robust jobs market and domestic demand remain intact.

The economic ministry's forecast of slowing economic activity comes hot on the heels of Germany's leading economic think tanks who also last week have slashed their growth forecasts on the domestic economy for 2014 and 2015. Sluggish domestic demand, weakening exports and stagnant euro bloc economies are the reasons for a slowing economy, according to these leading German Institutes. Europe's largest economy will grow by only 1.3% this year and 1.2% next year, compared with April's forecasts of 1.9% and 2.0%, respectively, according to leading economic think tanks.

Greece, which has now been downgraded to an emerging economy recently informed the International Monetary Fund (IMF) that it will end its obligations to the deeply unpopular rescue program, which have placed crippling austerity measures on the country, more than a year early.

The IMF’s rescue plan for Greece, which was implemented in 2010 amounted to a massive €240 billion (£188 billion). It was a bailout, or financial rescue, of a nation that was unprecedented in the history of finance. Few economists doubt that the rescue plan saved Greece, albeit what is left of Greece, and may have even prevented the rest of the European Union back then from a financial meltdown. Athens is now taking the view that it is stable enough to exit the program. “Not only do we not need a new memorandum [rescue loan agreement]. We don’t need the rest of the money that from the start of next year we were on course to get from the current memorandum. We can leave it one and a half years earlier… that is our goal,” Prime Minister Antonis Samaras told parliament just prior to his government surviving a vote of confidence on Saturday.

Greek Finance Minister Gikas Hardouvelis, informed IMF Director Christine Lagarde on Sunday October 12 of the decision. 

The financial lifeline from the IMF had been scheduled to expire in March 2016, while funding provided by the eurozone, the bulk of which came from Germany, is scheduled to end this year.

The Greek economy remains in perpetual ruins with unemployment officially around 27 percent and youth unemployment above 50 percent. It is a hot bed for political extremism. More than 3 million Greeks have no health insurance and if ebola were to speed to Greece, with a decimated public health system, the virus would spread rapidly.

Last week, Lagarde advised Athens to continue with the program, saying that Greece is still confronted by a budgetary shortfall of about €15 billion for 2015.

“The country would be, in our view, in a better position if it had precautionary support,” she said. “So we are talking about evolution in the relationship. But we believe that the relationship can still be extremely helpful for the country to move on.”

Meanwhile, the Italians are up in arms over the EU sanctions imposed on Russia, which have already cost Italy alone two billion euros due to Moscow’s retaliatory food embargo, according to the leader of Italian opposition party Matteo Salvini.

Western sanctions on Russia are a “great foolishness" and the EU agricultural sector has already lost five billion euro, said European Parliament deputy and the leader of the Northern League opposition party Matteo Salvini. The Northern League is a far right political party in Italy with a separatist agenda to split the northern part of the country from the southern regions. Salvini previously described the euro as a "crime against humanity". With respect to loss of business due to sanction, Salvini said that Brussels is only ready to provide 200 million in compensation and he is arguing that it is not enough.

A little further north over the Alps the French are also wrangling with Brussels over its budget deficit. French MPs will soon begin debating the country’s 2015 budget and are under great pressure from Brussels to make further cuts to reign back spending. France's tension with Brussels over its budgetary deficit is mounting with Paris demanding more “respect”. France is facing increasing pressure to modify its deficit-hit budget for 2015. But Paris's posture on the matter remains unwavering and it claims that it deserves greater “respect”. Moreover, France is refusing calls by Brussels to further rein back spending. Discord over the budget deficit is driving a wedge between France and Brussels, particularly Germany, the two main EU countries. So it will be interesting to see how this one plays out.

France estimates that next year’s budget deficit, the shortfall between revenue and spending will hit 4.3 percent of annual economic output, well over 3.0-percent ceiling set by the EU for member states.