Worries about the eurozone came to the fore this week after a poor set of industrial production figures from Germany was swiftly followed by news of a 5.8% fall in its exports, compared with expectations of a 4% decline. The fall was the biggest since January 2009, and showed the effects of the sanctions on Russia over Ukraine, as well as the wider slowdown in the eurozone.

Germany’s economy shrank by 0.2% in the second quarter, so a second consecutive contraction in GDP in the third quarter would tip it into a technical recession. There were reports that the government would next week lower its estimates for GDP growth to 1.2% for both 2014 and 2015, from 1.8% for this year and 2% for next year.

Mario Draghi, the president of the European Central Bank, added to the gloom on Thursday by saying in Washington that the eurozone recovery was running out of steam.

Analysts are nervous that Draghi’s plans to stimulate the flagging eurozone economy with a bond-buying programme have still not been fully implemented and may not be sufficient anyway. Other central banks, notably the US Federal Reserve, have been gradually turning off the money that has been supporting the global markets for the past six years since the global crash which followed the collapse of Lehman Brothers. The prospect of this support ending, and of interest rates rising, had already started to unsettle markets. There was a brief respite from the week’s slide when the minutes of the latest Federal Reserve meeting suggested it was in no rush to raise rates, but this proved short-lived... It becomes clearer by the day that the Eurozone is heading back into crisis - several of the Mediterranean members have never really recovered from the recession of 2009 - unemployment in Greece is 29% whilst youth unemployment in Spain is over 50%. These are depression levels.
Whilst ever Germany insists on continuing with its austerity programme for the EZ, it will languish in low growth/no growth. Now that even Germany is feeling the effect of lack of demand for its exports to the other EZ countries, perhaps some change will occur in policy. If not, then a second crisis for the EZ will spell the political end of the project, with unpredictable results for the European Union overall.

Greece’s finance minister, Gikas Hardouvelis, argued in talks with the IMF boss, Christine Lagarde, that Athens can do without further loans from the Washington-based lender of last resort. Emergency bailout funds have propped up the Greek economy since it came close to crashing on a mountain of deficit and debt in 2010.

“Not only do we not need a new memorandum [loan agreement],” said prime minister Antonis Samaras, addressing parliament hours before his government survived a crucial vote of confidence early on Saturday. “We don’t need the rest of the money that from the start of next year we were on course to get from the current memorandum. We can leave it one and a half years earlier … that is our goal.”

Funding from the IMF had been due to expire in March 2016, while funds from the eurozone end this year. At €240bn (£188bn), the lifeline was the largest rescue programme in global financial history and was aimed at preventing the debt crisis that affected Athens from spreading to the rest of the eurozone.

Samaras denies that Greece wants an acrimonious break from the IMF. The organisation, perhaps more than the EU, has insisted on tough reforms and austerity measures in return for the rescue funds. These have exacerbated a six-year recession, the worst on record, left a quarter of the workforce unemployed, and seen support for Samaras’s fragile coalition plummet.

Hardouvelis, who met Lagarde with his predecessor, the governor of the Bank of Greece, Yannis Stournaras, is thought to have presented a plan detailing the country’s ability to cover its financing needs from bond markets. But the IMF chief has already signalled that she does not share such confidence. Although the IMF is also keen to disengage from the programme – and is under pressure from member states to focus on countries in the developing world – Greece is faced with a financing gap of about €15bn next year.

How much more of a disaster has the Euro to be before those completely disfunctional Eurocrats realise that the great experiment has been an unmitigated disaster. The only beneficiaries have been the MEPs raking in their inflated salaries and even greater expenses and benefits not forgetting the gravy train of two parliaments swapping places every 6 months. Is there anyone outside that corrupt self serving organisation who does not realise what an exercise in futility the Euro and the EU as a whole has been. The extremes of wealth of the individual nations that go to make up the EU would make any self respecting economist and thinking individual tear their hair out at such an absurd notion that this disparity could ever be made to work. The two main protagonists of this joke France and Germany can not even kid themselves any longer of the integrity of the system.....it is surely bankrupting them and only a question of time before reality must surely set in. Please please, UK extricate your self completely and spread your phenomenal trading abilities to the whole world and cease to be hamstrung by the ridiculous and petty micro managing rules and notions of what has become an embarrasment to the peoples of Europe... Christine Lagarde, the head of the International Monetary Fund, warned that the eurozone is at “serious risk” of falling back into recession if nothing is done, and is in danger of suffering a lost decade. “If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable,” she said. The wording is a clear call to Germany for an immediate shift in policy.  German exports slumped by 5.8pc in August as the crisis in Ukraine and Russia took its toll. “We’re no longer in a recovery,” said Volker Treier, head of the German Chamber of Industry and Commerce (DIHK). He said geopolitical upsets may have pushed the economy over the edge into a “technical recession”, but added that Germany itself is also to blame for failure to break out of a slow-growth trap. “We have too little investment. That’s been the case for years,” he said.  The Wise Men said in a joint report that the German economy is now in “stagnation”, with unemployment likely to rise next year. “There are no signs of the long-awaited recovery yet. Corporate investment fell in the second quarter and there is hardly any evidence to suggest that this cautious approach to investment will change in the near future,” they said.

Growing fears about the US economy sparked a global stock market sell-off, with shares in London, Europe and the US falling sharply following poor data from America.... As the dollar falls so the value of companies rise as they are valued in widgets, so as the dollars rises so the value of companies fall, also if you have a large deficit that can not be paid for with tax then you create perpetual bonds at zero percent interest to the value of the difference, now both the UK and US are doing this, they call it QE, but no where can I find this in this paper or its comments, is every commenter here a troll typing a from a script? I live in a world of either robots or crazy people...The QE addicted stock markets are suffering cold turkey. They expect their next fix soon. The Fed dealer will comply to keep his customers happy. Sadly they still don't realise the QE fix makes the addict sicker.  I'm looking forward to the November Gold Referendum in Switzerland when the people will vote for ensuring the Swiss franc is actually backed up by something more than a promise of more funny money.  A further nail in the coffin for this absurd charade... QE means that the Fed has lots of US bonds. This kept interest rates low. Why doesn't the Fed start selling these bonds as there is now a demand for a safe haven in US dollars? The will prevent interest rates on the bonds falling lower and get the Fed out of the real economy.
OK what is wrong with this idea?   High rates increase the debt repayments for all debtors, the largest of which is the USGovt. An entity which has, as it happens, dramatically increased the proportion of its debt that is short-term, a move designed to lower interest costs. This also exposes the US to huge rate-risk as they must roll this short-term debt frequently. They cannot risk higher rates, possibly ever.  What they would ideally like is high inflation combined with low rates, to inflate away the value of all those trillions in debt while keeping interest payments down...  My sense is that the belief that Central Bank policy can insulate investors from any and all risk is now wearing thin. Finally. After a very long wait for those of us who always knew it would. If true, this has profound implications that will quickly become apparent.  As long as traders believed that the CBs would always be willing and able to save the day in case of any market pullbacks, why not leverage up and go all-in? It's been nearly impossible to lose money in the stock/bond/property markets over the past 5 years. Many/most traders know that the CB's have been blowing a massive asset bubble over the past few years but they also believe that they're smarter than everyone else and will be able to sell before the crowd when the bubble starts to pop - so why not, as former Citigroup CEO Chuck Prince memorably put it, 'Dance as long as the music is playing'?

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.”

This is not what the central banks intended when they cut the cost of borrowing and cranked up the electronic-money printing presses in the process known as quantitative easing. They expected cheap and plentiful money to rouse the animal spirits of entrepreneurs, encouraging them to invest. Instead, they have provided the casino chips for speculators.

The IMF has identified three main problems:

First, while the traditional banks have been strengthened since the crisis by the injection of new capital, they are not really fit for purpose. The IMF conducted a survey of 300 banks in advanced economies and found that institutions accounting for almost 40% of total assets were not strong enough to supply adequate credit in support of the recovery.

Second, risk is shifting from traditional banks to what is known as the shadow banking system – institutions such as hedge funds, investment banks and money market funds that do not take deposits directly from the public, but have grown in size and importance over the past decade. The fund thinks the next crisis could well stem from the shadow banks.

Third, by guiding financial markets to expect only limited and slow increases in interest rates, the fund fears it has made investors complacent. Prices of a range of financial assets have risen; there has been little distinction between investments that are safe and those that are risky; and markets have been eerily free from volatility. Asked where the next sub-prime crisis was going to come from, Viñals said he did not have a crystal ball. Clearly, though, the IMF fears there is something nasty lurking out there.

An economy that staggers in and out of recession. An inflation rate that is barely above zero. An ageing and falling population. It was inevitable, therefore, that IMF managing director Christine Lagarde should be asked: Is Europe the new Japan?

The answer from the IMF boss was that, yes, in some respects the eurozone was displaying some symptoms of “Japanification”. Her advice was that Europe should follow its own version of the three-arrow policy being pursued by Japan’s prime minister Shinzo Abe. Abenomics, as it is known, involves more monetary stimulus in the form of quantitative easing, more fiscal stimulus in the form of higher public spending, and structural reform to make the economy more efficient. Lagarde suggested a similar package could help Europe avoid the risk of recession, which the IMF puts at 40%.

“There is a serious risk of that [recession] happening,” she said. “But if the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable.”

Poor economic data from Germany allowed finance ministers from outside the eurozone to pile on the pressure.

George Osborne said the slowdown across the Channel was affecting UK growth. Germany, though, was resisting pressure to run down its budget surplus to boost growth. German finance minister Wolfgang Schäuble said writing cheques was not the answer.

By the end of the week it was clear that the eurozone’s two biggest economies were at loggerheads, with France saying it would not reduce its budget deficit to hit the 3% target set by Brussels until Germany did more, and Berlin arguing that it was up to Paris to move first.

Real GDP growth made up the ground lost to the 2008 crash in the 1st quarter of 2011 and though sluggish has remained positive. The Euro are as a whole has yet to make that ground. Only Germany, Austria and Belgium have outperformed France.

Employment participation rates for the key 25-54 demographic though off their pre crash peak of 2008 by a slightly more than 2% remain considerably than the Euro area as a whole and much higher than the US. Long term interest rates are at all time lows reflecting investor confidence, inflation is less than 1%, and its current account balance as a percentage of GDP is mildly negative , though, improving and significantly better than the US.

France is a good example of how public expenditure and strong labour laws acts as a buffer to to the privations of a severe economic downturn. Austerity and relaxed labour regulation imposed by the right wing ideologues on the countries of Southern Europe have devastated those economies causing wide spread and wholly unnecessary suffering. The right wing dogma attributing Europe's woes to excessive debt that can only be mitigated by draconian cuts in the face of a weak economy have led to the real threat of a deflationary spiral that would further weaken European economies and be much harder to recover from. Europe, like the UK and the US need to stimulate their economies back to full employment and adequate sustainable demand. The money borrowed to accomplish this would be offset by a combination of increased revenues from positive growth, a return to progressive, avoidance proof taxation and a 2-3 % rise in inflation. Debt forgiveness though laudable in intent does nothing to address the long term underlying causes of the havoc wrought by the unregulated, heads we win, tails you lose, cowboy free marketeers and banksters.