Not so long ago, the economies of Greece, Spain, Portugal and Ireland were the cause of so much worry about the health of the eurozone. Suddenly, it’s the “big three” of Germany, France and Italy that are causing the hearts of financial market-watchers to beat a little faster. The single currency area recorded zero growth in the three months to June, thanks to poor performances from the triumvirate. German GDP fell by 0.2 per cent, Italy’s was down by the same amount, while the French economy simply stagnated. Ironically, some of those countries on the fringe, notably Spain and Portugal, enjoyed something of a bounce back.
But their recovery is insignificant when put alongside the woes of the three central players. Between them, Germany, France and Italy account for two-thirds of eurozone GDP. Each has its own problems. Italy is ground down by appalling bureaucracy. The alarm is that Italian debt stands at €2.1trn (£1.7trn). Its debt to GDP ratio is an eye-watering 136 per cent. France is going nowhere. The economy is in the doldrums and the government seems at a loss how to give it the kick-start it so urgently needs. Germany was hit by problems with its exports. Normally, that could be dismissed as a temporary blip and the eurozone could look forward to another German powerhouse performance in the next quarter. But crucially, these figures were registered before the Ukraine stand-off entered a new phase, before Russian sanctions were introduced. Since then, business confidence in Germany, a huge trading partner with Russia, has crashed, and the tensions with Moscow show no sign of abating. Far from it – they could get worse.
The consequences for the eurozone of a worsening row with Russia do not bear thinking about – the underlying weakness of the single currency area is all too obvious. What’s required is some action from the European Central Bank. Just as pump-priming via quantitative easing appears to have worked for the UK economy, so too must the ECB consider something similar for the eurozone. It has to find a way of sparking growth. To do nothing, against the backdrop of Ukraine, is not an option.