News of Germany Bank

Germany Bank News

Germany’s economy slipped into reverse in the last quarter of 2011 despite strong growth of 3 percent for the full year, the country’s Federal Statistics Office said yesterday, sparking fears Europe’s most important economy could be heading into recession. The economy probably contracted by 0.25 percent in the last quarter. The final figure is due in mid-February. Joerg Kraemer, chief economist for Commerzbank, expressed little surprise and said he expects the economy to shrink in the first quarter of 2012, as well. That would put it in a recession, technically defined as two consecutive quarters of contraction. The country’s annual growth rate was achieved in spite of the financial crisis in Europe, which has left Greece, Spain, and Italy struggling with huge debts and slumping output. Germany should outperform the United States, which announces 2011 GDP data on Jan. 27; the IMF has estimated 1.6 percent for the year. The figure remains far short of emerging economies such as China, estimated at 9.5 percent, and India at 7.8 percent. Also yesterday, Spain’s Parliament approved the new conservative government’s first austerity measures, designed to rein in a huge deficit with $11.5 billion in spending cuts. The measures include income and property tax hikes. Finance Minister Cristobal Montoro called them severe but necessary, owing to mismanagement by the former Socialist government. “The economy is stopped, we’re on the verge of a recession, and the accounts are unbalanced,’’ he told lawmakers. In 2010, Spain began to emerge from a nearly two-year recession triggered by the collapse of a property and construction bubble. The country has a 21.5 percent unemployment rate, the eurozone’s highest. Industrial production fell 7 percent year-to-year in November.Other austerity measures include a freeze on civil servants’ salaries and on practically all government hiring. Pensions, however, are to be increased by 1 percent. Taxes on income and property will also be raised, but only for two years. In Italy, Prime Minister Mario Monti threw his support behind a proposed tax on financial transactions, backing Germany and France, but said it should apply to the whole 27-nation European Union. The United Kingdom is opposed.

The European Commission has estimated the tax could raise as much as $77 billion a year in Europe to help reduce budget deficits. Italy has become a focus in the European financial crisis because of its size, huge debt load, and need to borrow heavily in the first quarter. The yield on its 10-year bonds is around 7 percent, considered to be a danger zone. Some economists say the European Central Bank should help Italy more by buying its government bonds in larger quantities. That would lower Italy’s borrowing rates and ease pressure on its finances. But the central bank, along with Germany, resists such a move, not wanting to be seen as propping up specific governments. The central bank holds its monthly monetary policy meeting today, but analysts do not expect it to cut interest rates.