Germany leaves Italy and France behind in euro zone recovery

Tue Feb 25, 2014 7:45am EST

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* Commission predicts euro zone growth of 1.2 percent this
year
    * Germany set for 1.8 percent jump - three times that of
Italy
    * EU economy chief Rehn - 'worst of crisis' may be over

    By John O'Donnell and Robin Emmott
    BRUSSELS, Feb 25 (Reuters) - Germany is set to accelerate
away from France and Italy in 2014 as the fragmented euro zone
gradually recovers from its worst crisis, the European
Commission said on Tuesday.
    In a departure from the gloom of the crisis years, Brussels
slightly increased its growth prediction for the bloc's
9-trillion-euro economy to 1.2 percent in 2014 from an earlier
1.1 percent forecast.
    It was powered chiefly by a 1.8 percent jump in Germany.
    But the statistics also made clear the scale of the
challenge facing Italy and its new prime minister, Matteo Renzi,
in turning around the bloc's third-largest economy. The
Commission predicts meagre growth of 0.6 percent this year.
    France is expected to grow 1 percent in 2014.
    "Recovery is gaining ground," said Olli Rehn, the EU
commissioner in charge of economic policy. "The worst of the
crisis may now be behind us," he said, cautioning, however, that
the recovery was "still modest".
    While the improving outlook will relieve the European
Central Bank, the figures also outline how Europe still lags the
United States. The U.S. economy is expected to grow by around 3
percent in 2014, buoyed by massive money printing programmes
that the European Central Bank has been unable to emulate.
    The figures also draw a clear dividing line in the euro zone
between southern countries such as Greece, struggling
economically and arguing for more freedom to spend, and Germany,
buoyed by strong exports and determined to enforce thrift.
    Paul De Grauwe, an economist with the London School of
Economics, blamed Germany for hampering the ECB and said the
time had come for the central bank to act following its creation
of a special emergency programme to buy state bonds through
outright monetary transactions, known as OMT.
    "They need to take some risks," he said. "The ECB has been
bold once when they announced OMT but since that it has done
nothing."
    "The Germans are afraid of their own shadow. The U.S. has
been willing to go further in stimulating the economy. As a
result, growth has accelerated," he said.
    ECB President Mario Draghi has less freedom, however. Under
its statutes, it is banned from buying bonds directly from
governments, although it can find ways to buy them from banks,
for example, on the open market or accept them as security in
return for finance.
    Markets expect the ECB's next move could be to offer a
further round of cheap, long-term loans to banks.
    Complicating the picture further for the ECB, the Commission
sees consumer price inflation at well below the central bank's
target of around 2 percent. Inflation is likely to be 1 percent
in 2014 and 1.3 percent next year.
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