Debt crisis puts the brakes on growth in the eurozone

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The Independent Online

Growth in the eurozone is declining rapidly, according to the latest data from the EU's statistical agency Eurostat.

The economy of the 17-nation bloc grew by just 0.2 per cent between July and September. The strongest growth came from Germany, which expanded by 0.5 per cent, and France, which grew by 0.4 per cent over the three months. Finland and Austria both expanded by 0.3 per cent, while Spain and Belgium were stagnant.

Although the total eurozone area registered growth of 1.4 per cent compared with the same period in 2010, policymakers and independent economists expect growth to turn into contraction before the end of this year.

Jonathan Loynes, of Capital Economics, said of the Eurostat figures: "The key point is that this is all history. Forward-looking indicators suggest that the eurozone economy is likely to drop back into recession in the fourth quarter and beyond."

The new president of the European Central Bank, Mario Draghi, said at his first press conference earlier this month that the eurozone would enter a "mild recession" before 2012.

Yesterday also saw investor confidence in the safety of eurozone nations' sovereign bonds fall sharply again. Italian 10-year bond yields crept up above the danger level of 7 per cent. Investors were unnerved by reports of difficulties faced by the new Prime Minister, Mario Monti, in forming a governing coalition.

The leader of the right-wing Northern League party, Umberto Bossi, was reported to have refused to attend any meetings with Mr Monti. According to La Repubblica newspaper, Mr Bossi said he would not support any newly-named government in a confidence vote and would only back measures passed on a "case-by-case basis".

The Spanish government managed to sell €2.6bn (£2.2bn) of its 12-month debt yesterday, but Madrid had to pay an interest rate of 5 per cent to do so – up from 3.6 per cent at the last such auction. And the spread of French 10-year bonds over German Bunds reached a record high for the euro era.

The Socialist government of Spain's Prime Minister Jose Luis Rodriguez Zapatero is expected to be defeated decisively by the centre-right People's Party (PP) in national elections that arescheduled for Sunday.