Published On: Mon, Aug 26th, 2019

Merkel urged to spend big to save Eurozone – Panic at G7 as Euro crisis looming | World | News

The Eurozone is headed for a “fresh crisis”, according to economist Liam Halligan as he warns that only Germany can save the monetary union from collapse. Germany, one of the eurozone’s largest economies is headed for a recession and Mr Halligan says that the country needs to make significant changes to fiscal policy to stimulate its own economy and the broader region. This, he says, will “spark growth elsewhere” and help prevent the “looming” eurozone crisis.

Germany’s economy contracted 0.1 percent between April and June and Germany’s central bank is expecting a similar drop in the three months to September.

Industrial production is also on the decline, as the ongoing US-China trade war has hit Germany’s mighty car industry by making exports more expensive.

Overall, the manufacture of German vehicles declined 18 percent last year, down from 5.7 million to 4.7 million.

The Bundesbank said of the economic downturn: “The overall economic performance could decline slightly once again. Central to this is the ongoing downturn in the industry.

“Future developments will hinge on how long the present economic dichotomy lasts and which direction it takes one it dissolves.

“As things currently stand, it is unclear whether exports and, by extension, the industry will regain its footing before the domestic economy becomes more severely affected.”

But Mr Halligan, writing in the Sunday Telegraph suggests that German Chancellor Angela Merkel should “take steps to boost the economy”, by investing more at home and boosting both government and consumer spending.

Such a policy won’t be easily adopted however, due to the Government’s enshrined policy of staunch fiscal restraint.

JUST IN: Merkel CRISIS: Germany heading for deep recession, central bank warns

He added that €50 billion isn’t that much either, accounting for less than 1.5 percent of German GDP.

But the economist says Ms Merkel needs to “step-up” its fiscal policy in order to “stop the euro imploding”.

He cites the currency zone’s shaky banking sector, with the stock of non-performing loans being three-times higher than the US and four-times more than Japan.

Shares at Deutsche Bank, Germany’s largest bank, have also started to decline, as the stability of the immensely important bank is beginning to be questioned.

Mr Halligan warned that if the European Central Bank moves deeper into negative-rate territory, the “eurozone bank balance sheets will look even worse”.

But Germany has a chance to save the large economy.

He said: “It strikes me only Germany can save the eurozone – by taking concerted efforts to stimulate its own economy and the broader region, something we’ve not seen from the country in decades.

“Unless Germany reflates, sparking growth elsewhere, populist Euroscepticism can only rise in Italy, France and Germany itself.

“And without bold fiscal action, bond markets could finally crack, the ECB unable to hold back the tide.”

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