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Eurozone Q2 GDP impacts UK

08-15-2012 11:45 BJT

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The eurozone’s second-quarter GDP numbers are crucial because a shrinking euro area economy makes a solution for the eurozone debt crisis even tougher. And the continuing problems in the eurozone also hamper growth of other European economies - such as that of the UK.

London is Europe’s financial services capital, and so when eurozone economies, large and small, are struggling to grow, the effects are felt here.

But even though the signs for the eurozone economy remain grim - European shares have been enjoying something of a bounce in August.

This because of the hope that eurozone leaders or the European Central Bank will have to act soon to ease the crisis.

Will Hedden, sales trader of IG Index, said, "There is a little bit more of a heightened event risk that, say, the ECB do come out and do something and all of a sudden we see the market shoot up and I think that’s starting to worry some of the people who would be leaning towards the bear side of things but are still keen to keep their exposure in the right place if things turn for the good."

Greece remains at the epicentre of the crisis - latest GDP figures show its economy contracted 6.2 % in the second quarter.

European officials will hope this is as bad as it can get for Greece but if it gets worse, staying in the euro gets harder.

And officials in Brussels are being forced into the worrying position of having to deny speculation Greece will fail to raise enough cash to pay its bills, in short-term bond auctions.

Ryan Heath, spokesperson of European Commission said, "No, we’re not worried. According to our information, the T-bill issuance is fully under control. It will suffice to cover the financing needs of Greece for a good while. And obviously we closely monitor the funding situation and we work in consultation with our Greek partners to make sure that everything is OK."

Up til now the export-led German economy has been the bright spot in the gloom of the euro area but there have been signs recently that even Germany’s growth can’t be guaranteed.

And so in the city of London many feel ECB president Mario Draghi does not have long to act to bring borrowing costs down for countries like Spain and Italy.

Will Hedden, sales trader of IG Index said, "If we don’t see the kind of movements that the markets have been kind of expecting from Draghi and what he’s talked about standing ready to deliver, if we don’t see those, then we could start to see quite a difficult autumn."

So in London investors are trying to make sure they’re prepared for all eventualities.

Financial institutions here in the City of London still have their contingency plans in place for a messy break-up of the eurozone. But they’re also planning for a long, slow, painful recovery for the European economy, even if a muddle- through solution can be found to keep the single currency together.

Editor:Wang Xiaomei |Source:

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