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Europe: Germany Contracts, France Stagnates, Italy In Recession

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    August 20, 2014

    The recovery in Europe, not that there was ever much of one, is now over. As expected in this corner, Germany Contracts and France Stagnates in Second Quarter.

     The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.

    Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures.

    Both figures missed forecasts and, with Italy back in recession, none of the region’s three largest economies grew at all in the spring.

    French finance minister Michel Sapin said that economic growth this year would now be 0.5 per cent, half of the previous official estimate of 1 per cent. That would also mean missing its budget-deficit target of 3.8 per cent of economic output this year, a level it had set as a necessary stepping stone to achieving the EU’s ceiling of 3 per cent of output by 2015.

    Teeing up what will doubtless turn into a feisty debate with Brussels in the coming weeks, Mr Sapin said that France would now cut its deficit “at an appropriate pace” given the bleaker outlook.

    “The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year,” he wrote in the op-ed.

    Stating that economic growth next year would not be much higher than 1 per cent compared with a previous forecast of 1.7 per cent, Mr Sapin said that the harder times called for a rethink of European targets.

    Time for a Rethink

    Sapin wants a rethink. I certainly agree. It’s time for France to

    • Rethink agricultural subsidies
    • Rethink high tax rates
    • Rethink work rules
    • Rethink countless regulations
    • Rethink government spending that accounts for 57% of GDP
    • Rethink Hollande
    • Rethink socialism

    Actually, it’s time for France to rethink everything that isn’t working. In turn, that means France needs to rethink everything, because as best as I can tell, nothing is working properly.

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.


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