Official figures have revealed that the economy of the recession-bound euro zone and the wider 27-country European Union has contracted by 0.2 percent in the second quarter of this year.
New data released by the Eurostat, the EU's statistics office, on Tuesday showed a 0.2 percent decline in the gross domestic product (GDP) in “both the Euro area and the EU27 during the second quarter of 2012, compared with the previous quarter.”
The new figures reflect how Europe edges toward recession as gross domestic product growth stood at zero in both the EU and the euro zone. A recession is officially defined as two straight quarters of falling output.
The euro zone would officially be in recession if it was not for Europe's biggest economy, Germany’s economic growth of 0.3 percent in the second quarter.
Among the euro zone’s biggest contractions, Portugal's GDP shrank by 1.2 percent, Cyprus recorded a 0.8 percent contraction and Italy was down 0.7 percent.
Meanwhile; France's economy has flat lined for the third quarter running in the three months to June, amid worries that Europe’s second economy is hovering on the edge of a new recession.
Press TV has conducted an interview with the Economic Commentator Shabir Razvi from the capital city of London to further discuss the issue.
What follows is an approximate transcription of the interview.
The first question, the latest growth figures are indicating that Europe’s economy has shrunk by 0.2 percent in the second quarter of the 2012. Now the question is why can’t the economy be stimulated to stabilize and grow? What is wrong here?
Hello, good afternoon. Well, not only has the economy shrunk by 0.2 percent, all the economists and the commentators are indicating that year on year by the end of the 2012 the euro zone GDP [Gross Domestic Product] would fall by 0.5 percent.
So the only country that is experiencing any growth at all and that is not very significant either, is Germany; with a 0.3 GDP growth in the last quarter, but if you look at…, you know, Italy, Portugal had a 1.2 percent negative GDP, so all across Europe the problems are being compounded and particularly this month of August is when most of the continent shuts down and the Europeans head for the beaches, hopefully coming back with an improved tan.
But when they come back they will realize that their economies have shrunk, the salaries will not increase, inflation will eat away more into the pay pockets and the austerity measures, which we have talked about and economists have referred to, all across Europe is proving to be very, very difficult for any improvement in the economic growth of the euro zone at this moment.
This is sort of the fundamental problem being faced by the euro zone countries.
So basically Mr. Azakiwe, would you say if you want to bring up a main factor now that is stopping that growth and leading to stagnation, is it unemployment? Is it the falling exports for instance?
What do you see as the main factor here?
Well, there is not just one main factor, the key factor in all this is the measure of austerity that is being applied.
In your comment someone said that the other Mediterranean countries have cut their labor costs, therefore when Europe is coming out to recession those nations would be the beneficiaries.
I do not quite agree with that particular analysis. You know, how far are you going to cut the salaries, the incomes of the ordinary people?
If they do not have enough income how are they going to spend in the economy, so the economy can pick up, you know the whole multiplier effect, which is basically economics that was once taught in high school, is being neglected by the leaders in Europe.
The money is being restricted because of the austerity measures, incomes are not going up and inflation is eroding any purchasing power that the people may have.
So it is a complicated situation, there is not one remedy but certainly Germany which is now reunited and invigorated, actually holds the purse strings to the euro zone crisis.
Germany is the only country which has the power through the ECB [European Central Bank] to recapitalize the banks, so that the banks [can] start lending to the SME [Small and Medium enterprises] sector, to small to medium enterprises, which all across Europe are the engines of creating employment.
It is the SME sector which is being dried and starved of bank funding, so that they cannot do any expansion and cannot employ people on any meaningful level.