Growth vs debt reduction
The weakness of the global economic recovery was underlined this morning by figures showing GDP growth in Germany slowed to 0.1% between the first and second quarters of 2011, about a fifth of the rate expected by forecasters.
As for the annual rate of growth, that slowed to 2.8% - which, however, still looks handsome compared with UK growth.
It is the trend that counts. And the German trend doesn't look encouraging, which - with Germany as the economic motor of the eurozone - augurs ill, particularly since this performance pre-dates the share-market slump of the past fortnight that will have dented the confidence of consumers and businesses.
Or to put it another way, there is no serious momentum in economic activity that gives endless time to the leaders of the eurozone to agree measures that will provide reassurance to creditors and investors that Spain and Italy - inter alia - will ultimately be able to pay all their debts.
Unsurprisingly shares across Europe have fallen this morning. And if market confidence is bashed as much as it may be, there will be a flight away from debt perceived to be riskier - so the European Central Bank will doubtless have to redouble efforts to buy Spanish and Italian government bonds, to prevent the borrowing costs of the Spanish and Italian governments moving back up to dangerous levels.
But there may come a moment when the ECB decides that enough of its balance sheet is invested in Spanish and Italian public-sector debt. At its current buying rate of £4.4bn of eurozone government bonds per day, equivalent to an annual buying rate of more than one trillion euros, how long before the ECB's exposure to potential credit losses on sovereign loans of questionable quality becomes embarrassingly large - the kind of direct exposure that no central bank would wish to have?
All of which just adds to the burden of responsibility on the French president and the German chancellor as they meet today, to at least avoid saying anything in public that exacerbates the fears that the eurozone remains a whole philosophy way from having an answer to its debt-induced woes (see my post of yesterday for more on this).
Interestingly, the tone of an article in today's FT by Christine Lagarde, the managing director of the IMF, seems to imply that stimulating short-term growth is now perceived by the IMF to be more important than immediate deficit reduction - which is not quite the same message as that of the British Chancellor, George Osborne, in his newspaper article of the previous day.
The central claim in her article was this one:
"We should remember that markets can be of two minds: while they dislike high public debt - and may applaud sharp fiscal consolidation - as we saw last week they dislike low or negative growth even more."
Sadly it is impossible to prove whether her contention is correct: as I've mentioned before, depending on the time of day, investors and creditors seem by turns more frightened by the Scylla of unsustainable debt and then petrified by the Charybdis of possible recession.
The path between the treacherous rocks would be less fraught if the great surplus countries, Germany and China, did more to stimulate their domestic economies. But even if they were to do that, it leaves unresolved the great British debate - about whether the UK's indebtedness is so great, and the confidence of investors in our credit-worthiness so fragile, that the chancellor dare not cut taxes or increase job-creating infrastructure investment.