eu eurozone\s growth has stalled
Last Updated : GMT 06:49:16
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Last Updated : GMT 06:49:16
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EU: Eurozone's growth has stalled

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Arab Today, arab today EU: Eurozone's growth has stalled

Berlin - Arabstoday

The European Union has drastically cut its growth forecast for the eurozone in 2012, from 1.8% down to just 0.5%."Growth has stalled in Europe and there is a risk of a new recession," said European Commissioner Olli Rehn.The low growth makes it harder for Europe to escape its debt crisis, with Italy's position seen as unsustainable.Italy raised 5bn euros from a new issue of bonds on Thursday, but had to pay an interest rate of 6.087% to borrow the money for one year.European markets remained jittery on Thursday as worries persisted about the high cost of borrowing faced by Italy.After opening lower, stock markets in Germany and France rebounded to show modest gains in morning trade, but the UK's FTSE index was slightly down.Earlier in the day, Japan's Nikkei share index had fallen by 2.9%, South Korea's Kospi shed 3.8% and Hong Kong's Hang Seng index dropped 5.3%.The interest rate on the one-year Italian bonds was up from 3.57% in October and was the highest for 14 years.On Wednesday, yields on Italian 10-year bonds rose above 7%, to the highest rate seen since the eurozone began.The rate implied that if Italy were to borrow money today, with the aim of paying it back in 10 years, it would have to pay an interest rate of more than 7%, a rate seen as unsustainable by most analysts.On Thursday, the yield on Italy's 10-year bonds fell back to 6.98%.Announcing its revised growth forecasts, the European Commission predicted that if there was no change in political policy, Italian public debt would remain unchanged at 120.5% of GDP next year, before falling to 118.7% in 2013.The commission also forecast that next year, Greece would see its debt level rise to 198.3% of GDP.Commenting on the current eurozone crisis, UK Prime Minister David Cameron said that eurozone leaders "must act now"."The longer they delay, the greater the danger," he added.The continuing problems in Europe also saw the International Energy Agency cut its forecast for oil demand."The ever-present threat of a far-reaching financial collapse from the worsening quagmire in Greece and Italy generated a raft of daily headlines that injected a high level of trading volatility," it said.Market attention has shifted to Italy where a weak financial reform package has triggered a dangerous rise in 10-year government bonds (yields)."Oil markets are inextricably linked to the deterioration in the European debt situation given the impact on financial markets, the heightened risk of global recession, and the corresponding potential loss of oil demand.Analysts said action needed to be taken in order to calm the markets."Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy," said Frederic Neumann from HSBC in Hong Kong."We need radical solutions at this point to backstop the markets."Economists are concerned that the global banking system could still be affected, regardless of whether there is a resolution to the eurozone crisis."Whatever they come up with, it doesn't avoid a European recession," said Su-Lin Ong at RBC Capital Markets."Increasingly, there is a risk that it spills into the banking system and becomes an issue of credit, and the lifeline of economies freezes up again," she said.Last month, in an attempt to ease concerns about the Greek debt crisis, eurozone leaders asked banks to raise more capital to protect themselves against any losses resulting from future defaults by Greece.At the same time, banks also accepted a 50% loss on the money they had lent to Greece.The fear is that if Italy's debt crisis worsens, similar measures may have to be taken by banks that are exposed to its debt.Meanwhile, the euro continued to weaken on Thursday, touching a one-month low of $1.35 against the US dollar, and a two-week low of 105.1 yen against the Japanese currency.As uncertainty about the outcome of the eurozone debt crisis continues, many investors have been ditching the euro and euro-based assets.

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