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Can ECB help struggling euro zone?

Thursday, August 14, 2014 - 02:11

Euro zone economic growth ground to a halt in the second quarter as France’s economy stagnated and Germany’s shrank. Joel Flynn asks what, if anything, can the ECB do and how Russian sanctions could further cloud the outlook?

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The euro zone's economies thought they were well on the road to recovery. Instead - growth ground to a halt in the second quarter. Germany's economy shrank and France's stagnated for the second successive quarter. The French government admitted it would miss its budget deficit target this year. Italy also slid back into recession for the third time since 2008. But the German numbers are most worrying for economists - and politicians. Foreign trade and investment in Germany particular weak spots. Volker Treier is from the German chambers of commerce. SOUNDBITE: Volker Treier, Head of the Foreign Trade Section Head of German Chambers of Commerce, saying (German): "Within this growth rate of -0.2% in the second quarter, there's also a dampening effect from foreign trade. This results from the conflict in Ukraine and with Russia. But this can also be traced back to a development in many emerging economies, which are reliant capital, due to a current account deficit." Since the euro zone crisis, Germany's propped up the rest of the bloc. That raises doubts about the future - when the countries are already bracing for the impact of tougher sanctions on Russia. It's not all bad news, says Azad Zangana is from Schroders. SOUNDBITE: Schroders European Economist, Azad Zangana, saying (English): "The fundamentals for the German economy are still very strong. There's a great deal of scope to rotate out of the net trade contribution to GDP and more towards consumption and investment." It's another headache for the ECB - already worried about continued low inflation. It's due to start loaning banks cheap money in September to try and kickstart investment. Euro zone banks are also readying for stress tests. This all just likely to increase the calls from investors for the ECB to introduce quantitative easing. Brenda Kelly is from IG. SOUNDBITE: IG Market Analyst, Brenda Kelly, saying (English): "There has been a distinct lack of activity and proactivity in respect of the inflation or the lack thereof, so I think what we do need to see is a little bit of transparency from the ECB and a little more action." One of the few bright spots was Greece - its economy shrinking less quickly and should be on track to emerge from recession this year. But the tension between Russia and Ukraine looks little signs of abating. Euro zone economies surely facing tough times ahead.

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Can ECB help struggling euro zone?

Thursday, August 14, 2014 - 02:11