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Eurozone crisis could mean German credit downgrade

by Judith Orr

Predictions that the eurozone was coming out of its crisis have turned to dust.

Instead the biggest “core” economies are getting dragged further in.

The combined economies of the 17 eurozone member countries shrank by 0.6 percent from October to December last year.

Those countries already in recession saw the greatest drop in their economic output. Italy’s economy shrank by 0.9 percent. It has been in recession since mid-2011.

In Greece output in the same period was down 6 percent on a year ago. Unemployment rose to 27 percent.

The same trends are seen in Spain where unemployment, a housing crisis and privatisation are forcing workers into direct confrontation with bosses and the state.

2012 was the first full year of no economic growth in the eurozone.

The credit rating agency Standard & Poor’s said that the economies of Spain, France, Italy and Portugal were all at risk of a downgrade in 2013.

This means the agency doubts the ability of the countries to repay their debts.

But the news that will have the most impact is that both Germany and France shrank in the last quarter.

In France the 2.3 percent fall in manufacturing, the biggest since 2009, included all areas—with the sole exception of food production.

Now Germany’s output has dropped by 0.6 percent—sending shudders through the zone.

Germany is seen as the powerhouse of the eurozone. It is held up as the example of how expanding production and exports have enabled it to survive and even prosper while other economies are failing.

Economists say this method has led to low rates of unemployment.

But a drop in its exports and investment exposes its vulnerability.

It also exposes the lie that the problems of the eurozone are due to the “bloated” public sectors of the southern European countries.

No economy is immune from the global crisis.

Germany’s exports have to find buyers.

The Chinese economy has been slowing, though the last quarter it was up.

This has shown that one of Germany’s most important markets is also unable to escape the impact of world recession.

The Germany economy is spun as the answer for the whole eurozone.

One columnist wrote in the Financial Times, “The great hope has always been that austerity will bring national budget deficits under control while structural reforms, especially in labour markets, will help fuel a gradual, export-led recovery by improving competitiveness.”

The plan is not working. Austerity is wrecking people’s lives and it is not solving the problem.

That is because the crisis is one rooted in the very system of capitalism—not the wages and welfare budgets of working class people.


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News
Tue 19 Feb 2013, 16:26 GMT
Issue No. 2341
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