New data add to worries about European economies

Angela Merkel

LONDON -- With European leaders squabbling over how to revive their withering economies, new market indicators Thursday showed the steep challenge they face, including signs that even powerhouse Germany may be heading for trouble.

A monthly index of manufacturing and services in the 17-nation Eurozone by Markit Economics fell in May to its lowest level in nearly three years. The index dropped to 45.9 from 46.7 in April, the fourth straight month it has registered a decline.

The news was particularly grim for manufacturing, which hasn’t fallen at so steep a rate since June 2009, Markit said. And in an especially worrisome sign, the overall output index for Germany, the motor of the European economy, declined slightly, only the second time it has done so in 34 months.

The gloomy data were released just hours after European Union leaders ended an informal summit with no concrete measures for dragging the region’s economy out of its growing slump. Concerted action by the EU is now not expected until late next month, unless the region’s debt and financial crisis escalates significantly before then.

That could happen June 17, when Greece, the flashpoint of the euro debt crisis, holds a second election to supersede an inconclusive poll earlier this month. Officials from the Eurozone -- the 17 nations that use the euro -- fear that a popular anti-austerity party could take power and then renege on Athens’ international bailout agreements, which would force a showdown that could see Greece expelled from the currency union.

Alarm over the situation and increasingly aggressive rhetoric out of Athens, Berlin and Brussels caused sharp losses for European stocks earlier this week. They recovered a bit of ground Thursday, despite the unpromising market data.

Backing up the findings of Markit Economics, the respected Ifo Business Climate Index also found a sharp decline in business confidence in Germany. The outlook for manufacturing and construction was down. Only the service sector was more optimistic in May than in April.

“The recent surge in uncertainty in the Eurozone is impacting the German economy,” the report said.

Disagreement between Germany and France over how best to tackle Europe’s ongoing economic crisis broke wide open at the informal summit in Brussels. France’s new leader, Socialist President Francois Hollande, is pressing for more stimulus measures and for collectively backed government debt in the Eurozone. German Chancellor Angela Merkel continues to insist on debt and deficit reduction, primarily through harsh spending cuts, as the No. 1 priority.

But swelling anti-austerity sentiment across Europe has pushed Merkel onto the back foot. On Thursday, after a meeting between the chancellor and top German lawmakers, opposition leader Sigmar Gabriel of the Social Democratic Party told reporters that Merkel now acknowledged the need for stronger measures to promote growth.

“The government’s blockade on this issue has been broken,” said Gabriel, whose support Merkel needs in order to secure German ratification of a European treaty on fiscal restraint that she has championed.

There was also discouraging news from outside the Eurozone. Economic output in Britain, which does not use the euro, contracted by 0.3% in the first quarter of this year, not 0.2% as previously thought, according to revised figures released Thursday.

Like several other European countries, including Spain and Italy, Britain has slid into a double-dip recession.

Critics of Prime Minister David Cameron’s government say the slide is due to the deepest public-spending cuts that Britain has seen in at least a generation.

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--Henry Chu

Photo: German Chancellor Angela Merkel speaks at a news conference Thursday after an informal summit of European Union leaders in Brussels. Credit: Jock Fistick / Bloomberg

 
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