EU Woes Not Taking a Big Toll on Germany

German Chancellor Angela Merkel. (Getty Images).

BERLIN (TheBlaze/AP) — It was only a matter of time. With many of its debt-ridden euro partners in recession, Germany could only swim against the tide for so long.

Figures Thursday showed that output in Germany, Europe’s largest economy, contracted by more than anticipated in the last three months of 2012. And it was the German drop that lay behind a deepening of the recession across the economy of the 17 European Union countries that use the euro.

Eurostat, the EU’s statistics office, said the eurozone’s economic output shrank by 0.6 percent in the final quarter of 2012 from the previous three-month period. The decline was bigger than the 0.4 percent drop expected in markets and the steepest fall since 2009, when the global economy was in its deepest recession since World War II.

Thursday’s figures highlight the scale of the problems that have afflicted the single currency zone over the past year. Fears of a break-up, if not a collapse, of the currency dented confidence at a time when many governments were embarked on fairly severe debt-reduction programs.

EU Woes Not Taking a Big Toll on Germany

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In 2012 as a whole, the eurozone economy shrank by 0.5 percent, a stark contrast from the 2.2 percent growth recorded in the U.S. and the 1.9 percent in Japan.

The eurozone has contracted for three straight quarters (a recession is officially defined as two quarters of negative growth). The eurozone is not alone in finding it increasingly tough as the year progressed but the fourth quarter figures confirm the region is struggling worse than others.

If the quarterly rate is annualized, the eurozone would be contracting by around 2.5 percent, much worse than 0.1 percent drop in the U.S. and Japan’s 0.4 percent fall. Eurostat does not provide annualized comparisons.

The worry for European policymakers is that output is declining not just in the weaker, debt-laden economies such as Greece and Spain, where governments have been aggressively increasing taxes and cutting spending in order to get a grip on their public finances and relieve the pressure inflicted on them by skeptical investors.

The standout from the quarterly figures was Germany. Its economy shrank by a quarterly rate of 0.6 percent in the fourth quarter, more than the 0.4 percent expected, as demand for its exports from its European neighbors were dragged down by the underlying economic malaise.

France, Europe’s second-biggest economy, also saw output drop by 0.3 percent. Both economies are now one quarter away from recession.

The Eurostat figures showed that seven eurozone countries were in recession at the end of 2012 – Greece, Spain, Italy, Cyprus, Portugal, The Netherlands and Finland. If upcoming figures for Slovenia show it contracted for the third quarter running in the final three months of the year, than that number rises to eight, almost half the eurozone.

EU Woes Not Taking a Big Toll on Germany

French President Francois Hollande. (Getty Images).

France remains a greater cause for concern as its economy faces a number of problems that don’t trouble Germany as much. The French government has to keep a tight leash on its finances, unemployment is around 10 percent and its exporters are struggling, not least in the auto sector, with both Peugeot-Citroen and Renault struggling.

Though many analysts think France’s recent structural reforms will help make the economy more competitive, any tangible gains will not be seen for a while.

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