Countries in the eurozone face their worst recession in half a century after data on Friday revealed that the economic slump late last year was even steeper than feared.
Eurozone gross domestic product fell 1.5 per cent in the fourth quarter, led by a dramatic deterioration in Germany. This highlighted how the fortunes of the world’s economies have become entwined as the global crisis has unfolded.
As finance ministers from the G7 group of industrial nations gathered for a summit in Rome, Alistair Darling, UK chancellor, said Germany’s difficulties demonstrated that economies were going through “one of the severest downturns in generations” and that “governments must take extraordinary actions at extraordinary times”.
Before leaving Washington, Tim Geithner, US Treasury secretary, said he would call for “strong action” and that challenges called for “exceptional and complementary measures by all”.
German gross domestic produce contracted by 2.1 per cent in the final three months of last year – the worst quarterly performance since the country was reunified in 1990. That was significantly faster than the UK, where the fourth quarter contraction was in line with the eurozone average. Germany has had no housing bubble but has depended on exports to power growth.
With little sign of any rebound in global or European prospects, resistance to further cuts in eurozone interest rates has crumbled at the European Central Bank, which is widely expected to cut its main policy rate another half percentage point next month to 1.5 per cent – the lowest ever.
The ECB could soon follow the US Federal Reserve and the Bank of England in taking additional “non-conventional” measures to boost the economy – for instance by buying corporate debt.
London saw the latest eurozone economic data as rebutting an International Monetary Fund report last month that forecast the UK – not part of the eurozone – would be the hardest hit of all developed countries.
Downing Street maintained a diplomatic silence. But one senior government insider said: “These data show the challenging economic circumstances across the whole of Europe. The recession started earlier in the euro area than in Britain and in some countries has been deeper than in Britain, despite the fact financial services, the sector hit hardest, accounts for a larger share of our economy.”
The human dimension of the crisis was illustrated in Rome where ministers arrived late for G7 meetings after being delayed by tens of thousands of Italian workers protesting against their centre-right government’s economic policies.
Officials played down expectations of major initiatives at the summit, and said talks were limited to an evening’s dinner and discussions this morning.
Avoiding protectionist measures was top of everyone’s agenda. Ministers and aides sought consensus in public, while gently pointing fingers in the direction of others.