Is the Eurozone in danger?

Greece economy in danger

2009 saw economies in Germany and France emerging from the recession. Then 2010 hit and it was announced that the UK had emerged from recession in the last three months of the year. As global economies started to look up, it should have brought joy to the world, but it appears there are even more hurdles to overcome as Greece battles against its fiscal deficit, and news surfaces that the German economy failed to grow between October and December last year. Put simply, is the Eurozone yet again in danger?

Germany, along with France, emerged from the recession in the summer of last year, but the German national statistics office has said, "The recovery of the German economy lost momentum at the end of 2009."

Germany's GDP remained unchanged in the fourth quarter of last year, falling below forecasts of 0.2 percent growth and far below third quarter output which rose by 0.7 percent.

It was thought that Germany will be expected to put up most of the money and after years of misleading Greek statistics, fiddles and broken promises of reform.

The figures emerged after Angela Merkel, the German Chancellor, refused to commit to a bailout of Greece at a one-day European summit in Brussels. Instead, EU leaders made a general pledge to take "determined and co-ordinated action if needed" to prop up the euro.

Greece

At the end of last year Greece was embroiled in the most serious fiscal emergency to hit the Eurozone since the single currency was launched 10 years ago.

At the time, the finance minister, Giorgos Papaconstantinou, said, "We are bringing forward some of the measures and specific initiatives [...] as we see the need to send even stronger signals than we have been sending [to calm international markets]."

The socialists announced that they would have to reduce the deficit from 12.7 percent of GDP to 9.1 percent by cutting expenditure, increasing revenues and cracking down on widespread tax evasion, a correction, says Papaconstantinou, of "roughly €8 billion". The public sector, which employs about 700,000, will be dramatically scaled back.

Moving to 2010 and Greece has been hit by massive strikes and street protests over moves to cut public spending as part of an austerity plans as it battles a 12.7 percent budget deficit.

The International Monetary Fund (IMF) has joined the EU in supporting Greece. John Lipsky, managing director of the IMF, said: "We stand willing and able to support Greece in ways that the Greek authorities think is appropriate."

Jean-Claude Trichet, President of the European Central Bank (ECB) weighed in to help in Greece's efforts and drawing up "necessary additional measures". He said: "I confirm that the ECB will work with the European Commission in monitoring the implementation of the recommendations by Greece."

Despite these offers of help, Alistair Darling firmly ruled Britain out of providing monetary support to Greece.

He said: "It is really for Greece to try and resolve its problems, for Greece to deliver on all the promises that it has made," he said. "The euro area is managing that area and they will be discussing this...with a view to trying to resolve the matter and I am sure we'll be able to make progress."

Euro effected

As a result, the economy is struggling and there are fears over the euro as it starts to fall.

In the last two months, the euro has fallen seven percent over the concern that Greece's fiscal problems will spread to the rest of Europe.

Europe is being called on to support Greece to prevent the fiscal crisis from descending into a full economic collapse.

But if Greece's economy continues to deteriorate, who's to say we're not going to see a repeat of Ireland's financial crisis, where all three of the country's major banks collapsed, following their difficulties in refinancing their short-term debt and a run on deposits in the UK. Relative to the size of its economy, Iceland's banking collapse is the largest suffered by any country in economic history.

The financial crisis has had serious consequences for the Icelandic economy. The national currency fell sharply in value, foreign currency transactions were virtually suspended for weeks, and the market capitalisation of the Icelandic stock exchange dropped by more than 90 percent. Who's to say that this can't happen in Greece if powerful countries like Germany and England are reluctant to help it?

Germany may have its own problems, but if Greece falls, it could bring the Eurozone down with it. And let us not forget, Greece isn't the only country still in recession.

With governments phasing out incentives and unemployment at 10 percent, the highest in more than 11 years, Europe's recovery is showing signs of waning. Expansion in service and manufacturing industries slowed in January and investor confidence fell for the first time in seven months in February.

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