“Financial developments in Germany are the mirror-image of financial developments in the rest of the euro area,” Draghi added. “And this means that measures to ensure the stability of the euro area as a whole will also be to the benefit of Germany.”
Greece has suffered the most from the vicious slow growth cycle and is now in its fifth year of recession. Many say it’s unclear how the country will ever manage to reduce its debts, spark growth and break the cycle. The new forecast expects Greece’s economy to contract 6 percent this year and another 4.2 percent next year. In the spring, the commission had hoped growth would be flat in 2013.
Because low or negative growth reduces the amount of money governments receive in taxes, stagnation also threatens to throw countries off their deficit targets. According to the report, both Greece and Spain won’t meet their goal of reducing their deficits to 3 percent by 2014. It predicts Greece’s will be 4.5 percent at that point and Spain’s 6.4 percent.
In Greece’s case, that could mean jeopardizing the rescue loans it is using to fund itself. Greece has asked its international creditors for more time to reach its goal. Rehn said Wednesday that the country’s debt levels look increasingly unsustainable and that something must be done, but he stopped short of saying what.
David McHugh in Frankfurt contributed to this report.
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