Eurozone inflation slows in July

29 July 2011 Last updated at 10:26 GMT Some economists now think the ECB will leave interest rates unchanged at 1.5% for the rest of 2011 Eurozone inflation unexpectedly slowed in July to 2.5%, raising questions about when the European Central Bank (ECB) might raise interest rates again.

The preliminary estimate is down from 2.7% in June, according to the European Union statistics office Eurostat.

The July reading comes as a surprise after data earlier this week suggested inflation in Germany, Europe's largest economy, edged up to 2.4%.

The ECB has raised rates twice so far this year to try to control inflation.

The central bank wants to keep inflation below 2%.

'Compelling case'

No change had been expected in the inflation rate in July.

It is not clear what drove the decline, as Eurostat's initial estimate does not give a breakdown of the numbers - that is only released with the final estimate.

Economists said that the chance of the ECB raising rates from the current 1.5% before the end of the year now appeared less likely.

"While a further interest rate hike in the fourth quarter is clearly very possible, we suspect that slowing eurozone growth and recurrent sovereign debt problems will present an increasingly compelling case for the ECB to hold off from further monetary policy tightening this year," said Howard Archer from IHS Global Insight.

"We also anticipate that the case for further ECB action in 2011 will be diluted by mounting evidence that the second-round inflationary effects from higher energy and commodity prices are being contained.

"We currently expect the ECB to keep interest rates at 1.5% through the rest of 2011, then lift them gradually further to 2.25% by the end of 2012."

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Osborne: Eurozone must get a grip

21 July 2011 Last updated at 10:54 GMT Mr Osborne has said the UK cannot insulate itself from the eurozone's problems George Osborne has urged eurozone members to "get a grip" on the sovereign debt crisis plaguing Europe to prevent it spreading further.

The chancellor told the Financial Times that inaction risked economic damage on the scale of the 2008 banking crisis.

Countries using the single currency are holding a crunch meeting to discuss the Greek debt crisis and wider problems.

Nick Clegg said the crisis was not a justification for the UK to reshape its relationship with Europe.

Some Conservative and Labour MPs have called for Greece to be allowed to leave the single currency and for the current eurozone to be radically restructured.

Thursday's meeting will consider the need for a second eurozone bailout of the Greek economy - in which the UK insists it will not participate, as it is not a member of the single currency.

Amid fears of a wider "contagion", with the debt position of Italy and Spain being questioned, Germany and France said they had agreed a common position on how to handle the Greek situation.

'Very worried'

Mr Osborne, who is not attending the meeting, told the FT that while he was optimistic that the 17 eurozone members would make progress on the challenges facing them, the dangers of not doing so were considerable.

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We have a vital self-interest as a country in working with countries and our partners in the eurozone”

End Quote Nick Clegg Deputy Prime Minister "We see the potential for a set of economic events that could be as damaging as 2008," he said.

"I am very worried. This building (The Treasury) is very worried and this government is very worried."

While not contributing to eurozone bail-outs of Greece and Portugal, the government has stressed that a stable eurozone is in the UK's interest - as 40% of the UK's trade is with Europe.

The eurozone is looking at ways for the private sector to take a bigger role in supporting Greece's debts - potentially by expanding the bail-out package to include buying Greek bonds.

No finger-pointing

Amid calls from within the eurozone for greater fiscal integration to help struggling economies, Mr Osborne said there was a "remorseless logic" to this.

He said the idea of issuing eurozone bonds was "worthy of serious consideration" but he stressed the UK would not be taking part in any eurozone financial solutions.

At a press conference on Thursday, Deputy Prime Minister Nick Clegg said there should be no "finger-pointing" in the UK about the eurozone's difficulties, as a "strong and prosperous" single currency area was vital for the country.

"We have a vital self-interest as a country in working with countries and our partners in the eurozone to make sure the problems are resolved successfully," he said.

Although the eurozone needed "comprehensive and sustainable reform", he warned those predicting its demise - who include a number of Tory MPs - that this would have "catastrophic consequences" for millions of people, including people in the UK.

While it was "no secret" his party had different views from their coalition partners on Europe, he rejected suggestions the crisis could be a catalyst for EU members to "hare off" in different directions. "Absolutely not," he said.

'More active role'

Shadow chancellor Ed Balls said the UK should be playing the role of "honest broker" in discussions about the future stability of the eurozone.

"In the same way that President Obama and the IMF have all said ... 'get this sorted out', Britain - as a member of the European Union - we should be in there, helping to broker a solution.

"I think that's what leadership is all about and we have a direct interest in that. We should be there."

And former Labour chancellor Alistair Darling said eurozone leaders needed to come up with a "convincing" response, not a short-term fix to stop the problems spreading.

"You can see a real calamity facing us," he told the BBC.

"If America has problems and starts getting down rated in relation to its credit, we have got this continuing problem in Europe and you already have got very sluggish growth in this country.

"This is going to have a real impact ... and I do think our government ought to have been playing a more active role in encouraging our partners in Europe to sort this problem out."

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Eurozone releases more Greece aid

2 July 2011 Last updated at 20:42 GMT There have been violent protests against the austerity measures in Greece Eurozone finance ministers have approved the latest tranche of emergency help for the Greek economy.

They will release 12bn euros (?10.4bn, $17.4bn) in the next two weeks to help Greece meet spending commitments and avoid defaulting on its huge debts.

Earlier this week, the Greek parliament passed tough austerity measures demanded by the European Union and International Monetary Fund.

MPs backed the measures despite angry protests on the streets of Athens.

The EU and IMF have already agreed to provide Greece with a total of 110bn euros in emergency loans, with eurozone finance ministers discussing the details of a second bail-out designed to help Greece pay its debts until the end of 2014.

Greek Finance Minister Evangelos Venizelos welcomed the eurozone move, saying it "strengthened the country's international credibility".

He added: "What is crucial now is the timely and effective implementation of the decisions taken in parliament, so we can gradually emerge from the crisis in the interest of national economy and the Greek citizens."

'Breathtaking'

Earlier on Saturday, Polish Finance Minister Jacek Rostowski criticised Europe's handling of the Greek debt crisis.

He suggested that too much emphasis had been put on austerity measures and not enough on growth.

And he accused opposition parties in some unnamed eurozone countries of showing "breathtaking short-sightedness" in their opposition to support for Greece.

His comments come after Poland took over the six-month presidency of the European Union (EU) on Friday.

Mr Rostowski will now chair meetings of EU finance ministers, and hopes to join talks among eurozone finance ministers - even though Poland has not adopted the euro as its currency.

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'Slump' in eurozone manufacturing

1 July 2011 Last updated at 10:36 GMT The figures showed weakness across the board Growth in the eurozone's manufacturing sector lost steam in June as both exports and domestic demand slowed, falling to an 18-month low, a key survey has shown.

Markit's Manufacturing Purchasing Managers' Index (PMI) fell to 52.0 last month from 54.6 in May, its lowest reading since December 2009.

Any reading above 50 indicates growth.

Separate figures for May showed eurozone unemployment stable at 9.9%.

"Increasing numbers of countries are showing signs of sliding back into recession," Markit said.

Italy's manufacturing sector shrank for the first time in 20 months, while Spain's contracted for the second month in a row.

Growth in the German and French sectors slowed considerably, while the UK's manufacturing expansion fell to a 21-month low.

Gilles Moec, senior European economist at Deutsche Bank, said the data reflected two main factors: inflation hampering consumer demand and the end of stimulus measures in a number of regions, including the US.

"The weakness is no longer simply in the peripherals, it's now moving to Italy for instance," he told the BBC.

"This is painting a different picture from the one we had a few weeks ago."

Unemployment

The stable unemployment figures for May were widely expected by economists.

The European statistics agency, Eurostat, said 15.51 million people were out of work in May - an increase of 16,000 on the previous month.

However, the unemployment total is far lower than the same month a year ago, down by 551,000.

Unemployment was highest in Spain at 21% with joblessness among under 25's running at 44%.

Monthly figures for Greece were not available.

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Eurozone services growth slows

3 June 2011 Last updated at 09:54 GMT The service sectors in core economies performed better than those in peripheral countries, Markit said Growth in the eurozone services sector slowed slightly in May, while business confidence fell to its lowest level in a year-and-a-half, a survey suggests.

The closely-watched Markit PMI Services index fell to 56.0 from 56.7 in April. Any reading above 50 indicates growth.

However, the rate of job creation increased slightly, Markit said.

France and Germany continued to drive the longer-term recovery in the sector, while Italy, Spain and the Irish Republic saw limited growth, it added.

France recorded "by far the strongest" increase in business activity with the rate of growth only slightly lower than April's figure, which was a 10-year high. Germany also reported "robust" growth.

But outside these two economies "the trend was much weaker", Markit said.

Two-speed recovery

Business expectations for activity in one year's time also fell to their lowest level since November 2009.

This reflected less new business and concerns about the wider economic outlook.

The fall in confidence meant the rate of growth in the service sector was likely to slip further in the coming months, Markit said.

"The first quarter may well therefore be as good as it gets this year," said Chris Williamson, chief economist at the research group.

"Growth disparities between the core and the periphery are a growing concern, as deficit-fighting austerity measures hit domestic demand in the debt-laden periphery, leaving service providers particularly exposed."

However, he said despite the slowdown, the eurozone service sector remained "robust" and should make a "significant contribution" to overall economic growth in the current quarter.

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