Germany staged an impressive recovery from the 2008/2009 global economic crisis, but there are increasing signs that the boom is now coming to an end. After almost two years of strong growth, its economic outlook is starting to deteriorate, due to a slowdown in major emerging markets including China and fears of a possible United States recession caused by $2.4 trillion in spending cuts linked to the debt ceiling deal. Various indicators released in recent weeks point to a deceleration of Europe's largest economy. The Ifo business climate index for July fell sharply to its lowest level in nine months, and analysts say it is likely to keep dropping. The ZEW investor sentiment index showed the weakest level since January 2009. And the Markit/BME purchasing managers' index for the German manufacturing sector fell 2.6 points in July to 52 points, its lowest level since October 2009. "New order levels went into reverse in July, as fewer export sales helped end a two-year period of sustained growth," Tim Moore, senior economist at Markit, said. German engineering orders in June rose by just 1 percent year-on-year, after having jumped 21 percent in May, the VDMA engineering industry association said. "There are initial indications that demand for investment goods has become less dynamic in Germany and in the other euro member states," said VDMA economist Olaf Wortmann. In addition, top German firms have given more cautious outlooks for the remainder of 2011. Analysts have been paying particularly close attention to what is being said by the chemicals industry, which is regarded as a bellwether for the general industrial outlook because it supplies many different sectors.

The yield on 10-year Spanish bonds popped back above 6% yesterday and Italian 10-year yields stand at 5.66%. Such rates, if sustained for long periods, are simply unaffordable. Unsurprisingly, bank shares across Europe were also whacked yesterday. The problem is twofold. First, the politicians didn't get to grips with the size of Greece's debt problems. After a round of modest haircuts for private-sector creditors and a reduction in the rate on the interest rate charged on the bail-out loans, the country's debt-to-GDP ratio should no longer hit 170% soon. But the revised figure – maybe 130% – still looks too high to allow Greece to recover. Its economy is still too uncompetitive and you have to be an extreme optimist to believe tax receipts will arrive when they are due. So a third Greek bailout looks like only a matter of time. Get ready for more bitter rows over how the pain should be distributed between holders of Greek bonds and the taxpayers of other eurozone countries. That is no way to encourage companies to invest or consumers to spend – but it is the way to try the patience of German taxpayers. The second problem is the design of the European Financial Stability Facility – the rescue fund that is to be the first line of defence against speculative attacks. But how would Italy and Spain be defended in practice? The EFSF has been handed powers to intervene but no new cash. A fighting fund would have to be raised by passing the hat round member states – a challenge that looks a tall order today.

Germany and other euro-zone nations are pushing for some form of burden-sharing—for instance, delaying repayments to private-sector bondholders whose debt is about to mature. The European Central Bank is opposed. Mr. Van Rompuy's meeting will include ECB President Jean-Claude Trichet, Luxembourg Prime Minister Jean-Claude Juncker, European Commission President José Manuel Barroso and EU economy commissioner Olli Rehn. Many of the attendees are scheduled to be in Brussels on Monday for a regular meeting of the group of euro-zone finance ministers, of which Mr. Juncker is chairman. The wider finance ministers' meeting, too, is expected to include the Greek problem. A senior euro-zone official called Mr. Van Rompuy's meeting a precursor to the already scheduled Monday evening meeting of euro-zone finance ministers. "There are various concerns and worries about the progress of the second bailout package [for Greece], mostly because of little progress in the private-sector involvement," said the official. "It's not moving at the expected pace." Another EU official said there are several preparatory meetings that take place before finance-ministers' gatherings, adding this is "no emergency whatsoever." Mr. Barroso's spokeswoman said he will attend his regular coordination meeting with Mr. Van Rompuy, "enlarged to other actors, as has happened in the past." Meanwhile, Italy's stock-market regulator late on Sunday introduced temporary measures aimed at curbing speculative attacks on the Milan stock market, in a move that tries to respond to a wave of selling that hit Italian bank stocks on Friday. Stocks closed down 3.5% on Friday and the spread between 10-year Italian and German bond yields reached a record 2.47 percentage points on escalating concerns that debt-laden Italy might be dragged into the European debt crisis. A group of five Italian banks underwent a stress test, the results of which will be released July 15. The new measures in Italy require market operators to disclose short-selling moves above certain levels, according to a statement released by Consob, the regulator. The measures will be effective starting Monday and will remain in force until Sept. 9, the statement said. EU leaders have agreed that some form of private-sector involvement is necessary for another emergency loan to Greece so that the burden on euro-zone taxpayers is lightened. It has been so far impossible to nail down exactly how private creditors should be involved. Ratings companies have said that efforts that leave private creditors in worse financial shape will likely compel the companies to declare Greece in default. ECB officials have said a default is unacceptable. Talks with groups of creditors have yielded few results. Charles Dallara, the head of the Institute of International Finance, a banking-industry trade group, said last week that a "selective default" by Greece need not be as dire as widely thought, if it were temporary. A selective default occurs when an issuer defaults on some of obligations but continues to service others.