China and France should strengthen high-level exchanges to enhance mutual trust and deepen strategic cooperation on both bilateral and international issues, Chinese Foreign Minister Wang Yi said on Wednesday.

Wang arrived in France on Wednesday for a two-day visit, which will pave way for Chinese President Xi Jinping's visit to France next year which marks the 50th anniversary of the establishment of diplomatic relations between the two countries.

The trip to France is Wang's first official visit to Europe as foreign minister. He met French President Francois Hollande and Foreign Minister Laurent Fabius and exchanged views with them on hot international topics including the Syrian and Iranian issues.

"The relations between China and France go far beyond the bilateral realm and have distinct strategic importance. Therefore we should strengthen not only our bilateral cooperation but also coordination on major international issues," Wang said at a news conference.

China and France have vast potential to cooperate in areas such as urbanization, information technologies and agricultural modernization, he said.

Wang also reiterated China's position on the Syrian issue which is to support the settlement of the crisis through political means.

"China supports the second round of Geneva peace talk and the international community should create favorable conditions for various parties in Syria to reach a consensus for the settlement," he said.

French Prime Minister Jean-Marc Ayrault will soon visit China for the preparation of the 50th anniversary of China-France relations, according to the French Foreign Minister Fabius.

He said that France has decided to further simplify the visa application procedures for Chinese citizens, which will allow them to get French visa in just two days.

Fabius also noted that the French government wants to deepen cooperation with China on environmental issues as Paris will hold the United Nations Climate Conference in 2015.

The euro-zone economy plunged last quarter at its fastest pace in nearly four years, as weakening global activity and deep recessions along the currency zone's southern border gripped powerhouses such as Germany and France.

The report on gross domestic product from the European Union's statistics office highlights a key risk for the currency bloc as Europe's debt crisis enters its fourth year. Financial market conditions have improved markedly since last summer, due in large part to the European Central Bank's pledge to do "whatever it takes" to preserve the euro. But these gains haven't translated into new business activity.Without growing economies, Spain and Italy will likely see government-debt burdens increase even as they undertake austerity measures such as higher taxes and reduced spending. That could revive doubts in financial markets about the sustainability of their finances. GDP in the euro zone fell 0.6% in the fourth quarter compared with the third, according to the Eurostat report. Economists had expected a 0.4% drop. It was the third straight GDP decline and fifth straight quarter in which the currency bloc failed to expand. For 2012 as a whole, GDP fell 0.5% from the prior year.

GDP in Germany, Europe's largest economy, fell 0.6% from the previous quarter on declining exports and investment. France, the bloc's second biggest, declined 0.3%. Other large economies including Italy, Spain and the Netherlands contracted.

Italy's GDP plummeted 0.9% from the previous quarter, a much sharper rate of decline than the third quarter. Spain's downturn also deepened. Portugal's GDP slid 1.8% in the final three months of 2012, double the third quarter's rate of decline.

ECB officials expect the euro zone to embark on a gradual recovery later in 2013. But the source of that rebound remains elusive. Record-high unemployment in the euro zone has weighed on consumer spending, while fiscal austerity measures are expected to weaken state spending and employment in many euro countries this year. Borrowing costs for small businesses remain elevated in Spain and Italy. In Germany, where unemployment is much lower than other parts of the region, the economy appears to be bouncing back quickly with business surveys signaling a return to growth this quarter, aided in part by stronger exports to Asia. Weakness in late 2012 "is likely to be a springboard for a small V-shaped rebound" as soon as this quarter, said Berenberg Bank economist Christian Schulz.

But surveys of purchasing managers and other business leaders suggest France continues to contract this quarter. French industry has lost global competitiveness in recent years as its labor costs rose, economists say. A raft of tax increases imposed by President François Hollande is adding to the headwinds facing the economy.

The French government is preparing to at least halve its 0.8% GDP growth forecast for this year, officials familiar with the matter told The Wall Street Journal earlier this month. The smaller size of the economy and fall in tax receipts is also derailing government plans to cut the budget deficit to 3% of GDP this year.

"In order to maintain its position at the epicenter of the euro area in economic terms, France has a lot of work to do," said analysts at J.P. Morgan JPM -0.94%in a research note.

"The IMF said Germany’s currency is undervalued by up to 10pc, roughly the same as China, but monetary union is jamming the correction mechanism with EMU." Only 10pc? I would have thought nearer 15-18% at least compared to southern Med countries.

It is also interesting to see the IMF poking the sleeping giant with a sharp stick. It begs the question why the main prop beneath the whole EMU is being provoked into potentially wiping out western and southern European economies by turning off the tap of free money. Perhaps that is the plan? Oh well. Time to microwave some popcorn and watch the silly people shouting at each other. “Fiscal over-performance should be firmly avoided,” said the Fund in its annual health check on the country. “Should growth prospects sour and labour markets weaken, proactive fiscal policies would be needed. A large shock may necessitate invoking the escape clause under the debt brake rule in order to support domestic activity and employment,” it said, referring to a clause in the German constitution mandating a cut in the structural deficit to near balance by 2016. The IMF said Germany is barely above recession level, with growth of just 0.3pc this year followed by a Japan-style stagnation for the rest of decade with a peak growth rate of 1.3pc. The country will lag the United States by the biggest margin in modern history each year until 2018. While the language of the IMF report is polite, it masks a bitter dispute between the Fund and Germany over the nature of the EMU malaise, and whether austerity and reform really have cleared the way for a viable recovery....“Fiscal over-performance should be firmly avoided,” said the [International Monetary] Fund in its annual health check on the country.[Germany]" If only the Germans would perform fiscally like the Greeks everything would be rosy, I suppose. But they will insist on making things and collecting taxes and saving money and stupid stuff like that. By the way, I can't imagine my doctor telling me during my annual health check that I should firmly avoid being too healthy. But then my doctor isn't mad...Now, if one country is running a trade surplus then another must be running a trade deficit.   How do you finance a deficit?  By increasing your debt load of course. Now Germany is telling the PIIGS to decrease their debt loads, but making that virtually impossible by doing everything it can to maintain or increase it's trade surplus. The debt can only be paid back if Germany runs a trade deficit.  PIIGS debt is the other side of the coin to German surpluses...you see?

YESSSS.... DOWN WITH THE 4th Reich and Bruxelles Natzies !!!

Nigel Farage, the Ukip leader, has declared his party is on course to change the face of British politics in the wake of its strongest performance in local elections, making a series of gains across England...In the biggest surge by a fourth party in England since the second world war, Ukip averaged 26% of the vote in council wards where it stood, according to a BBC estimate.

The Ukip success saw Farage's party deprive the Conservatives of control of Lincolnshire county council after gaining 16 seats to become the main opposition. The Tories also lost control of Gloucestershire, where Ukip gained three seats and Labour gained four.This is fantastic news. Anything that pulls votes away from the Tories or pulls the Tories away from the center will damage them. See what happened to the republicans in the USA: dragged further away from the political center by the Tea Party, they made themselves unelectable. And single-issue parties will never have any long term impact in British politics. GO UKIP!...Nigel Farage, the Ukip leader, has indicated Ukip are not looking for power - but influence.   He compared the role of UKip to that of the SDP in the 1980s which, he argued, pushed Labour into a rightwards turn. Tony Blair, he said, was an "SDP Prime Minister."

He said: "I accept when it comes to a General Election we have a problem, that is the first-past-the-post system.

He said of the SDP: "They fundamentally changed the entire Labour Party - Foot and Benn and the hard left were all gone and the new modernising Labour Party ... with people like Peter Mandelson in strong positions.  "If ever there was a pressure group in British politics it was the SDP."   The Ukip leader said his goal was to "fundamentally change" British politics, insisting it "can happen".

Mr Farage told the programme he did not feel he was a Tory but supported the reforms made in the 1980s.

"We need radical reform and I am absolutely certain the getting back control of our country ... there is now a settled majority out there that wants us to get our country back," he said.

And the dollar falllsss, and the markets rrrriseee...?? abslute madness...?

LONDON—Euro-zone industrial output declined the most in three years in November, pulled lower by countries in the region's south facing recession as they attempt to cut debt and deficits through austerity policies. The decline is a further indication that the wider economy could contract for a third consecutive quarter in the final three months of 2012 as fiscally frail countries struggle with still-high borrowing costs and demand for goods suffers amid continuing job cuts. Output dropped 3.7% from a year earlier, the biggest decrease since November 2009, when output slumped 7%, Eurostat, the official European statistical office said Monday. Industrial output fell 0.3% in November compared with October, the third consecutive slide on a month-to-month basis. The yearly decline was due to weakness across the board with production of intermediate and capital goods falling at the steepest pace since 2009. In October, industrial output retreated 3.3% on the year and 1.0% on the month, Eurostat said. The October data were revised after previously being reported as falling 1.4% on the month and 3.6% on the year. The November figures were weaker than expected. Economists surveyed by Dow Jones Newswires last week projected the data to show industrial output rose 0.2% on the month and fell 3.2% on the year. The data provide further evidence that the economy of the 17-nation currency bloc contracted for a third straight quarter in the final three months of 2012. "November's euro-zone industrial production data provided further strong signs that the recession in the region as a whole intensified in the final quarter of last year," said Ben May, European economist for Capital Economics. Ireland, Greece, Spain, Italy and Portugal all saw production decline in November compared with October. Italy also published its full industrial production release Monday. Output fell 1.0% on the month and by 7.6% on the year in November last year, a bigger fall than expected. Output has declined for six straight months in monthly terms, and 15 consecutive months on an annual basis. Italy's national statistics agency Istat said the decline was mainly due to a fall in investment and energy output. Eurostat also reported that Germany saw a meager 0.1% monthly increase in November, while in France, output grew 0.5% over the same period.

Crass scaremongering by crass corrupt political "elite".

Crass scaremongering by crass corrupt political "elite".

In an interview with The Daily Telegraph, Viviane Reding, the vice-president of the European Commission, attacked the Prime Minister over the Government’s proposal to opt out of European Union law enforcement and policing measures. The justice commissioner expressed particular concern that the Government was “minded” to opt out from 135 EU crime and policing laws, including the European Arrest Warrant (EAW), which, she claimed, had “horrified” Britain’s own police force. “Do you want criminals and paedophiles running around freely on the streets? Is that really in the United Kingdom’s interest? It is crazy,” she said. In June 2014, the crime and policing legislation comes under the jurisdiction of the European Court of Justice, handing control of sensitive extradition and policing issues to EU judges. Under the Lisbon Treaty, Britain must either opt out of every measure or allow the EU jurisdiction over all 135 pieces of European legislation, a substantial transfer of sovereignty.The usual and very clumsy socialist mantra, if you are not with us you're a fascist/pedophile/Nazi nut/racist or some such clap trap...English Common Law, based on hundreds of years of common sense, held us in good stead well before the perversion of EU Vermin Rights Charter screwed our society over....A lot of assertions by Reding about the importance of staying in the system that "she" has created, but no explanation as to the logic of her assertions, or why she thinks the world will come to an end the day we leave HER system. I think this is just a part of the orchestrated shadow boxing that we get daily from the EU functionaries, supported by the Cleggies, ahead of the much advertised Cameron speech, which itself may not amount to much anyway. Any attempt at a balanced debate will always be taken over by much loud shouting from the EU....Geez and I always thought all the paedophiles were in the parliamwnts (all, including the EU parliament) and now she screams they`re on the streets also?? Brussels help help-send over Inspector Clouseau !!!!

HANNOVER, Germany—Germany's ruling conservative Christian Democratic Union party closed ranks behind Angela Merkel on Tuesday with a solid demonstration of unity, boosting her bid for a third term as chancellor by nearly unanimously re-electing her as party leader. During the last major gathering of the party before the federal election in September, Ms. Merkel won 98% of CDU delegates' votes to remain chairwoman. It was her best result in seven consecutive party leadership elections. German Chancellor Angela Merkel delivers a speech on Tuesday during the CDU federal party meeting in Hannover, Germany. Ms. Merkel, 58 years old, is seeking a third term as chancellor. Her approval ratings are close to 70% and in public-opinion polls, a clear majority of voters prefer Ms. Merkel as chancellor over her leftist challenger, Peer Steinbrück of the Social Democrats. The most recent polls give Ms. Merkel's ruling conservatives a smaller lead of some nine points over the SPD. Despite Ms. Merkel's popularity, her party, polling at 39%, still not be able to form a government after the next election. Her junior coalition partner, the pro-business Free Democrats party, is in a tailspin and has so little support in opinion polls that the party will struggle to gain enough votes to win seats in parliament next year. Ms. Merkel's popularity is based on support by ordinary Germans for her handling of the euro-zone debt crisis. She has pursued a cautious approach aimed at protecting German interests that is often criticized abroad as foot-dragging that just extends Europe's pain. In a one-hour nationally televised speech, she vowed to stay the course. "We have brought Germany through the crisis stronger than the country was when it began," she said. "I want the euro to emerge stronger from the crisis than it was."

Europe is an extremely poor place to do business

Europe is an extremely poor place to do business and its just getting worse. None of the Internationals wants to do business anymore because most of them lose money hand over fist due to EU regulations and the poor economic conditions and lack of a proper business environment. Many have stuck around while racking up quarterly losses in EMEA simply waiting for things to get better and trying to hold on to market share, but that will not keep up forever and the cracks are already showing. Disappointing eurozone PMI data dampens recovery...Manufacturing data from the eurozone shows that the sector contracted for the 15th month running, painting a 'bleak picture' and dampening hopes of an economic recovery in the region.mpens recovery ? There is no recovery. Its all hot air and bollox spouted by ministers and euro ministers, bankers and the IMF.We're going doooooown and we know it, hence the public anger. In the last 2 weeks alone. 250 jobs gone at severn seas, 350 at kimberley clark, over a 1000 lost at ford, now 6000 comet workers jobs on the line. I was added to the jobless figures myself a couple of months back so I know how things are feeling at the sharp end.But they must have their EU increases so they can continue to spend spend spend, fiddle their expenses, and feed us hot air and waffle.

Want to stimulate economic recovery?? weell here's how:
1. Cut taxes - let money ccirculate in the economy, not be lavished upon malingerers & the indolent!

2. Cut spending to the bone. End the socialist evil that is the welfare state.

3. cut red tape - abolish these silly 'elf & safety laws! do away with the legions of EU cucumber inspectors! Do away with regulators whose sole purpose is to strangle growth!

4. liberalise labour laws - end the minimum wage, criminalise trade unions. Then the economy will flourish!A Keynsian stimulus would have required supluses to have been run in the boom times.
This did not happen - in fact the last government was so incompetent that it did not even realise that it was running a structural deficit of £76bn in 06/07. Those advocates of Keynes were very quiet during the past decade - perhaps they believed the nonsense of "no more boom and bust". Either way, Keynes and his many disciples would be turning in their graves at the conduct of UK government policy for all of the last decade, and Keynes' ideas were made when the UK was a net exporter, had an Empire to fall back on, and government spending as a proportion of GDP was less than half what it is now.
A policy of running a deficit during a boom, followed by a bigger deficit during the inevitable bust is a recipe for national disaster, and people who propose such an action using the fig-leaf of Keynes should be sectioned under the mental health act and never be allowed in a position of power again.

Let me get this right....France wants more CAP money to prop up an unsustainable domestic farming culture based on 18th century methods. Germany does not want to shell out billions of Euro to pay for Greece, Spain et all, and is trying to fudge a deal until Angela can try to get back in. Spain is falling apart and refuses help as it would require to give up sovereignty, a precursor for joining and is breaking up anyway. Italy needs the cash to help its poor south, which by the way has been poor since biblical times, and Ireland , Portugal and Greece, poor bastards, are saddled with debt they cannot afford.
And that's just the biggies.
The whole concept is bankrupt both on a financial, social and an ideological basis, and on top of that, they are corrupt, never having passed an audit.
Why are we even talking to them?...

Talks on a new European Union budget have collapsed after David Cameron won German support in a row with France about his demands for more cuts in spending. The Prime Minister accused Brussels of 'living in a parallel universe' and said there could not be a 'deal at any cost.'  Speaking at the end of the failed summit Mr Cameron said: "We're not going to be tough on budgets at home just to come here and sign up to an increase. "Frankly the deal on the table was just not good enough. It wasn't good enough for Britain and neither was it good enough for a number of countries. "In the UK we are cutting admin budgets by as much as a third, civil service staff by 10 per cent in two years. None of this has been easy. Meanwhile Brussels continues to exist as if it is in a parallel universe."

Europe's leaders must forge a deal this week to help Greece get "back on its feet", the managing director of the International Monetary Find has said, as disagreement continued over how to tackle the country's mounting debt pile. ...Speaking of angry Germans, Jens Weidmann, the head of Germany's central bank, has warned that putting the ECB in charge of eurozone bank supervision risks compromising its primary goal of price stability. ....Writing in German daily Handelsblatt, Mr Weidmann warned that forming a "hasty" bank union would be counterproductive, and that leaders should opt for "thoroughness over speed". Mr Weidmann also said that a union would require a mechanism to wind down and restructure banks that should be funded by the lenders themselves. Are the IMF and the EU institutionally deaf, the 'fat lady' has sung her self hoarse, rolled over and died of old age. Maybe they have not taken the trouble to keep up with events.
The ordinary Greek people on the street know now what ever happens, they will collectively be accountable for many, many decades for the debt put on them by all these bailouts. They should have got out three or four years ago, but have been deliberately sucked into this vacuum and been enslaved by the bankers, and dare i say, their own country men and women who have repeatedly refused to pay their taxes and now have deviously moved their vast fortunes out of the country....When I read " Without the option of currency devaluation", I had to laugh.
France could (and perhaps should) consider leaving the corrupt club and then she COULD devalue her currency which would make her more competitive.... And...what about slashing the IMF ' s salaries by 75% and give it to the Greeks. The IMF'S staff will still have a more than decent living and , for once, they will have put their monies where their mouths are . As a special gesture, the Greeks could have Lagarde too, as she is useless, we would, then, have killed two birds with one stone.

...the decision to unleash the new action...

The president of the ECB said the decision to unleash the new action, which will be called Outright Monetary Transactions (OMT), had not been unanimous. He refused to confirm that the “one dissenter” on the ECB’s Governing Council was Jens Weidmann, head of the Bundesbank, but repeatedly told reporters that both he and the bank were “independent”. “I am who I am,” he said. As I understand it the ECB will only buy on the secondary market therefore it won't be taking part in national bond auctions. It will also only buy the bonds of countries which have been bailed out. So currently this only applies to Greece, it doesn't solve the problem for Spain or Italy unless they ask for a bailout and get one. It is of course unclear where the money would come from for a Spanish or Italian bail out. So I really can't see how this would help Spain get away its bond auctions, the ECB can't buy at the auction ( someone else would have to buy first) and they can't buy unless a bailout is requested. Also Greece as far as I know doesn't issue new debt, it relies on bailout funding and no newly bailed out country would issue new debt either. So I can't quite see how getting involved in the secondary market will help those countries. Finally of course this doesn't do anything to either write off debts or deficits. Countries are going to have to keep cutting , cutting , cutting, their economies will continue to shrink and their debts ( via bailout funds) will continue to grow...... unless a solution is found to the deficit problem we won't find a solution to the debt problem. I'm afraid I really can't see this helping much at all in a practical sense although obviously the announcement has news value and therefore excites the market. Putting something in place that allows debt ridden nations in deficit to potentially get further into debt and further behind the funding curve is hardly something to get excited about. 'Unleashed' was it? You can't unleash something you leaked the day before. The EU propaganda machinery is in overdrive at the moment - leaking one minute and then unleashing the next. I can't wait to see Draghi doing a 'Putin' beating his beared chest to emphasise the ferocity of the whimpering mouse he has set upon the financial markets. Draghi is Merkel's puppy. He was her nominee and when she barks he whimpers. If they ever have a real conflict he would not last a second. "I am who I am" "I Am that I Am is a common English translation of the response God used in the Hebrew Bible when Moses asked for his name." It's also a gay anthem. he's off his trolley, probably because he must find a new anthem and something else to unleash next week.,,,I wait in bemused anticipation.

barbarians at the gates...of european cristian countries

WSJ - Ms. Merkel said on Wednesday that no one should expect any concrete decisions to come out of her meeting with Mr. Samaras on Friday.  The question of whether to grant Athens more time is likely to play a significant role in talks between Ms. Merkel and Mr. Hollande at a working dinner in the Berlin chancellery on Thursday evening. The German and French leaders will make a brief statement to the press at about 1 p.m. ET Thursday and then withdraw for dinner and try to resolve their differences over dealing with Greece. It is believed that Mr. Hollande favors granting Greece more time. Ms. Merkel hasn't showed her hand yet, but her coalition government is deeply divided over the issue and she risks splitting the government if she agrees to give Greece more money, say analysts.

The pro-business Free Democrats, junior partner in Ms. Merkel's ruling center-right coalition, have insisted that Greece should be given no more aid and suggested it would be better for Athens to leave the euro. "We want to help, but there won't be any substantial changes to the agreed reforms," Foreign Minister Guido Westerwelle, a senior FDP official, told the daily Maerkische Allgemeine newspaper in an interview published on Thursday.

German opposition parties oppose the government's apparent hard line on Greece.  "It's not very smart to abandon all conditions (for aid) over an extension of 12 months," said Frank-Walter Steinmeier in an interview with the left-leaning Frankfurter Rundschau newspaper.

I've been wondering about Norway; for many the model to emulate. Many of the numbers here come from Norsk Industris Konjunkturrapport 2012. It's an employers' association, so expect a center-right bias. I'd be delighted if a Norwegian were to comment.

Norway's Sovereign Wealth Fund means the country has no insolvency problems. Unemployment is a low 3%. One out of three jobs is in the public sector. The Norwegian oil industry is expected to show a revenue growth of 15% next year, and is hiring. But Norway's traditional export sectors - industry and mining - will grow only 0 to 2%, and are firing people. And these traditional sectors employ about five times as many people as the oil sector.

There is a clear dichotomy in Norway's industry: on the one hand a booming oil sector which keeps the currency strong and wages high; and on the other hand an export-oriented industry which are suffering from the combined effect of the high kronor and high wages.  Surprisingly enough, given the strong sense of crisis in Europe, Norwegian companies actually increased their exports to the EU in 2011 by 12%. Exports increased to all EU countries except the PIGS countries in the south. Norway is not whining demand is weak. Exports to the UK increased +6.2%. Exports to the US dropped -4.3%. These are data for the whole of 2011. 80% of Norwegian exports go to the EU, 2% to China. Being outside the EU, Norway is free to make its own free-trade agreements with China, but China is not interested. Negotiations broke off when Norway gave Liu Xiaobo the Nobel Prize back in 2010. Norway had its banking crisis, following a period of financial deregulation. Small banks began to fail in 1988. The crisis peaked in 1991, and ended in 1994, six years after it began. Just imagine the Guardian running a "Norwegian Banking Crisis Live Blog" six years on end.
What's my take on Norway?

There are two Norways. The oil industry is booming; the export-oriented industry is suffering. The kronor-euro exchange rate is causing discomfort for Norway's export industry.  When a overvaluation of the Swiss franc threatened Swiss exports the Swiss National Bank intervened, and the Swiss franc has been at exactly 1.20 euro since. Of course, this means a large part of Swiss monetary policy is no longer determined in Bern, Switzerland but rather in Frankfurt, Germany. Nevertheless, pegging the franc to the euro is seen by many Swiss as a pragmatic solution.  Norway's future may be Switzerland's past. We may see the Norwegian kronor pegged to the euro sooner than we think. Yes, such a move would be political suicide in the UK. So what?

What did they do for the 2,500 years or so before they joined the EU?

When is Europe going to learn: austerity does NOT work ?--All the EU is doing is making things worse by forcing austerity on Greece....Greece needs an economy and destroying it's tax base won't help create one. It is not like a household budget no matter how many people without a grasp of national economics keep comparing it to one. Currency MUST circulate to make the economy of Greece recover, austerity takes currency out of circulation and makes the situation far worse than it would have been had nothing at all been done in the first place. Time to put an end to the mad conservative Austrian/German economic school experiments, they have been proven as failures time and time again. Without the US Fed, that pumped over 16 trillion Dollars into BCE, Germany and the like (France, Italy,Spain...), would have gone bankrupt long time ago. more so, the US maneuvered the exchange rate in order to help Germany report "banner exports" and a growing economy (even though Germany is on the brink as well). ENOUGH B.S.!!!...Help the Greek people back onto their feet and the government will have the income necessary to pay down its debt, keep forcing austerity on them and they will just starve while the government coffers remain empty. HORST REICHENBACH - THE "GOVERNOR" OF GREECE should ease the IV Reich imposition of rule !

Source : Ambrose Evans-Pritchard- 7:21PM GMT 12 Feb 2012 ****The US, Canada, Britain, France, Greece, and other signatories at the London Debt Agreement of 1953 granted Chancellor Konrad Adenauer a 50pc haircut on all German debt, worth 70pc in relief with stretched maturities. There was a five-year moratorium on interest payments. The express purpose was to give Germany enough oxygen to rebuild its economy, and to help hold the line against Soviet overreach. This sweeping debt forgiveness caused heartburn for the British - then in dire financial straits, themselves forced to go cap in hand to Washington for loans. The Greeks had to forgo some war reparations. Yet statesmanship prevailed. The finance ministers of the day agreed to overlook the moral origins of that debt, and the moral hazard of “rewarding” a country that had so disturbed the European order. The Wirtschaftswunder whittled down the burden of German debts to modest levels within a decade. Germany emerged as a vibrant democracy and a pillar of the western security system. Greece has less strategic relevance, and must comply with tougher terms.

Christine Lagarde, the IMF's managing-director, said the outlook had darkened suddenly over the summer. "There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken," she said. "The spectrum of policies available is narrower because a lot of ammunition was used in 2009. But if governments, institutions and central banks work together, we'll avoid recession," she told Der Spiegel. The comments come at the start of a dramatic week for the eurozone as Italy prepares to roll over record sums of debt and Germany's constitutional court issues its long-awaited verdict on the legality of the EU's bail-out machinery. Markets are already tense after the EU-IMF 'Troika' withdrew abruptly from Athens on Friday, accusing the Greek government of failing to comply with rescue terms. Mrs Lagarde said the US has scope to "abandon short-term austerity and introduce some measures to drive growth" provided the country lays out a credible debt strategy over the medium term. She said Europe needs to take its foot off the fiscal brake and shift to "growth-intensive measures" until the danger has passed, insisting that Germany has leeway to "stimulate demand".

End of the Wirtschaftswunder? - Carsten Brzeski of ING said that the German data was a "growth normalisation" rather than a "disappointment" on its own, as Germany should still grow by at least 3% this year. He warned, though, that the German economic recovery is clearly slowing. "Looking ahead, the million-dollar question is whether a solid second quarter is the beginning of the end of the German Wirtschaftswunder [economic miracle] and whether recent market turmoil could push the economy back into recession," said Brzeski. "While German politicians are currently racking their brains on the pros and cons of common eurobonds, the luxury of having an economy running at 'wonder' speed is fading away." Gary Jenkins, head of fixed income research at Evolution Securities, said the German data will "only add to the concern of the market that we are running into headwinds that are going to make a difficult situation even worse". French and German officials have already indicated that Merkel and Sarkozy will not discuss the idea of issuing eurobonds – debt backed by the whole eurozone rather than individual countries. Jenkins believes that eurobonds appear to be the "least worst option at this stage". He said: "A temporary fiscal union may be the endgame, where you have common bond issuance for five years that replaces all individual sovereign bond issuance, after which time that is phased back in over, say another five years. Thus you retain a modicum of moral hazard." Stock markets across Europe fell in early trading, with the FTSE 100 dropping 73 points to 5277. The euro lost ground against the dollar, as traders reacted to the news that Germany had reached near-stagnation. "Following on the back of weak GDP data announced by France this will further undermine any efforts to resolve the eurozone debt crisis," said Max Johnson, a broker at forex specialist, Currency Solutions. But he added: "Looking around the global economy, at least there will be few, if any, cases of schadenfreude."

08/08/2011 - -7.44am: Japan's stock market has now closed after a pretty nervy session, but one where we didn't see a full-blown panic. The Nikkei ended 2.18% lower at 9,097.56, down 202.32 points, having been as low as 9,057.29 at one stage.

"The three main concerns are S&P's downgrade of the U.S. debt rating, the ongoing European debt problems and inflation worries in China," Masanaga Kono, chief strategist at Amundi Japan, told Reuters. Most Asian markets are still trading, and they are all suffering losses. China's Shanghai Composite is down by over 4%. We'll do a full round-up of the Asian markets once they've closed - they've already helped to set the mood in Europe....

EURO-ZONE - Fears that the eurozone crisis is escalating and further evidence of the weakness in the US economy drove stock markets lower on Wednesday as policy makers failed to restore confidence in global markets. The FTSE 100 index closed at its lowest level since November, after its biggest one day fall for nine months of 133 points. After a nerve-racking day Wall Street narrowly avoided its ninth consecutive day of falls – a losing streak unseen since 1978. A much anticipated speech by Italy's prime minister, Silvio Berlusconi, was delayed until European markets closed but failed to calm the storm on international financial markets that threatens to engulf his country and imperil the entire eurozone. Italy and Spain – whose prime minister, José Luis Rodríguez Zapatero has cut short his summer holiday – are now at the centre of the eurozone debt crisis that began with Greece more than a year ago and has enveloped Ireland and Portugal. European commission president José Manuel Barroso tried to inject calm into the markets by insisting that record high yields – interest rates – on Spanish and Italian government bonds were "unwarranted". "Developments in the sovereign bond markets of Italy and Spain are a cause of deep concern," Barroso said.

European politicians had hoped their deal on 21 July to bailout Greece for a second time and impose losses on bond holders would restore confidence in the eurozone. Their efforts have failed, particularly as US debt crisis compounded the febrile atmosphere in the markets. In France, shares in the second largest bank Société Générale were temporarily suspended – they eventually closed 9% lower in heavy turnover – after it took a €395m (£345m) hit on its exposure to Greece because of its contribution to the bailout plan. Concerns were also mounting that banks across the eurozone were finding difficulties in funding themselves on the markets. Huw van Steenis, banks analyst at Morgan Stanley, said: "Investors, we and some banks are increasingly concerned that funding markets won't reopen with sufficient depth or at good enough terms for Italian and Spanish issuers, requiring banks to take offsetting measures". Berlusconi's statement to the lower house of parliament faced immediate criticism for failing to tackle the problems facing the Italian economy even though he promised to work with unions and employers on a reform of Italy's notoriously rigid employment laws. He drew attention to the fact that his government had earlier given the green light to €9bn of infrastructure projects which he said would promote growth, especially in the poorer south.

Ratings agency Moody's has cut Greece's debt rating by three notches to Ca on Monday, leaving it just one notch above what is considered default, and said the chance of a default is now "virtually 100%". The ratings agency warned that last week's bailout package agreed by eurozone leaders will make it easier for Greece to reduce its debt, but the country still faced medium-term solvency challenges and there were significant risks in implementing the required reforms. "The announced EU programme implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100%," the agency said. "[Greece's] stock of debt will still be well in excess of 100% of GDP for many years and it will still face very significant implementation risks to fiscal and economic reform," it added. The ratings agency is wary that the eurozone bailout package sets a negative precedent for investors. "The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece," Moody's said. According to the ratings agency, obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

The outlook is developing.

Standard & Poor's and Fitch have already downgraded Greece to CCC, one notch above Moody's.

IMF - John Lipsky, the acting managing director of the International Monetary Fund, has taken a tougher approach than his predecessor, Dominique Strauss-Kahn. Photograph: Aleofficials and diplomats in Brussels confirmed that the IMF threat to pull the plug on its funding – in stark contrast to the more emollient line of Strauss-Kahn – had been defused because of a German climbdown. As political turmoil continued in Greece on Thursday, with the prime minister, George Papandreou, scrambling to form a new government, the stage was being set for a political struggle between Europe's powerbrokers over the fine print of the proposed new €100bn-plus rescue of Greece. Berlin is deeply at odds with France and with the key EU institutions – the European Central Bank (ECB), the European commission, the presidency of the EU and the head of the eurozone, Jean-Claude Juncker, prime minister of Luxembourg – over the terms of a new deal. Germany was forced to agree to bail out Greece for the second time in a year under strong pressure from the International Monetary Fund following the resignation last month of its head, Dominique Strauss-Kahn, the Guardian has learned. Under its acting chief, the American John Lipsky, the IMF has taken a more hardline stance and it warned the Germans in recent weeks that it would withhold urgently needed funds and trigger a Greek sovereign default unless Berlin stopped delaying and pledged firmly that it would come to Greece's rescue.