Germany and France lead way in 'two-speed recovery'

The economic recovery of the eurozone slightly lost its momentum in August, with most of the growth dependent on the performance of Germany and France, a purchasing managers' index survey published on Monday (23 August) showed.

According to the preliminary figures from Markit, a UK-based research firm, the eurozone composite output index, which measures activity across the private sector, including the manufacturing and services sectors, fell to a two-month low of 56.1 in August, down from 56.7 in July.

While the outcome of the whole single currency bloc is "solid," Markit wrote in a press release, there are "worrying divergences" between national economies, as growth is largely dependent on Germany and France.

"Growth in the rest of the euro area slowed to near stagnation, and services even contracted again as austerity measures bite," Chris Williamson, the company's chief economist said.

There is little evidence to suggest that buoyant business conditions from France and Germany "are spilling over to the benefit of the periphery," he added, noting that this could spell further divergence in the euro area's "two-speed recovery."

Flash estimates from the EU statistic office Eurostat, published on 13 August, confirmed Germany as a leader of Europe's economic recovery with a GDP growth rate of 2.2 percent in the second quarter of 2010, the best German result since re-unification in 1990. France's GDP increased by 0.6 percent, while Spain, Italy and Portugal each reported increases of less than 0.5 percent. The EU's overall growth was 1.7 percent.

Euobserver

Germany turbocharges EU economy

The strongest economic growth in Germany in two decades powered Europe's economic recovery ahead of the United States. The eurozone economy grew by 1 percent in the second quarter, its biggest quarterly expansion since the second quarter of 2006, the European Union's Eurostat statistics agency said Friday.

...

Beating all analyst forecasts, Germany's economy in the second quarter of 2010 grew by 2.2 percent compared to the first three months of the year, its fastest growth in two decades. In comparison with the same time last year, Germany's economy grew by 4.1 percent, the Federal Statistical Office said Friday.

Link

France proposes EU reaction force for natural disasters

French President Nicolas Sarkozy has called for the EU to set up a joint rapid reaction force to handle natural disasters such as earthquakes, wildfires and floods. In a letter to European Commission President Jose Manuel Barroso published on Sunday (15 August), Mr Sarkozy addressed the issue of the EU's ability to react under its own name in connection to the recent floods in Pakistan.

"It seems essential, for obvious political and humanitarian reasons, that Europe shows its solidarity with the Pakistani people visibly. The interest of Europe is also to ensure the development and stability of this country," he wrote. Following the earthquake in Haiti and wildfires in Russia, says the letter, the EU "must take the necessary measures and build a real EU reaction force ... that draws on the resources of the member states." France is to draw up proposals for the force in the near future, it adds.

Paris announced Sunday that a plane with 60 tonnes of humanitarian aid will be sent to Pakistan, with Mr Sarkozy saying France is prepared to use its Nato military forces to help transport the aid. France has already allocated €1 million to Pakistan since the start of the floods, which are estimated to have affected 20 million people.

Last Wednesday (11 August), the commission said it would provide Pakistan with €10 million in immediate emergency aid, in addition to €30 million allocated in July. EU foreign ministers are to also discuss a long term aid plan for Pakistan at an informal meeting in September.

With wildfire smog returning to Moscow over the weekend, Russia itself indicated it would be interested in joining a multilateral crisis response force. "The United States and the EU have now come to the same conclusion. I think we will come to this, and such capabilities will have to be established," he told the Ria Novosti news agency.

Euobserver Link

Slovakia: No Funds for Greece Bailout

Slovakia’s parliament rejected the nation’s participation in a loan for Greece, ending the European Union’s unity in handling the sovereign-debt crisis. The 69-1 vote, with 14 abstentions, reversed a decision by the previous Cabinet to lend Greece 816 million euros ($1.1 billion). Prime Minister Iveta Radicova's month-old government opposed the aid, saying poor countries shouldn’t pay for the profligacy of richer peers.

“The Slovak share is small, so it shouldn’t have much impact on the big picture,” said Timothy Ash, head of emerging markets research at Royal Bank of Scotland Plc in London. “On the other hand, the rejection is clearly a disappointment for the European Commission as Slovaks are thinking outside the box.”

Olli Rehn, the EU’s economic affairs commissioner, called Slovakia’s decision a “breach of the commitment” the previous government made as part of the so-called eurogroup of countries. “The eurogroup’s decision was a crucial act at a critical moment to safeguard financial stability of the euro area as a whole, including Slovakia,” Rehn said today in a statement. “I can only regret this breach of solidarity within the euro area, and I expect the Eurogroup and the Ecofin Council to return to the matter in their next meeting.”

Slovak Finance Minister Ivan Miklos has said EU fiscal rules should be changed to allow for the default of euro-member nations. Slovakia, the euro region’s poorest member by per- capita gross domestic product, was asked to pay too large a share of the Greek loan package, he said July 30.

“Many people in Germany and rich EU countries would have a lot of understanding for the Slovak position,” Ash said. “It shouldn’t be inevitable that every country gets a bailout.”

Earlier, lawmakers approved Slovakia’s participation in the European Financial Stabilization Facility, an entity that would sell debt secured by 440 billion euros in national guarantees and use the proceeds to provide loans to distressed euro-region members. Slovakia’s share in potential guarantees amounts to 4.4 billion euros.

Bloomberg