February 15, 2013

The euro zone’s economy shrank last quarter at the fastest pace since the height of the world recession in early 2009, as a worsening slump in Italy and other southern European countries infected the bloc’s core economies of Germany and France.

The 2.3% drop in euro-zone gross domestic product in the fourth quarter, at an annualized pace, suggests that Europe’s economic and financial crisis is far from over. The region’s deepening malaise challenges European authorities’ insistence that fiscal austerity will lead to growth by boosting business confidence, economists say.

While such optimism may yet be borne out, hopes for an economic revival in Europe may also prove as fleeting as they were last year. “We’ve had so many false dawns in the past,” said Ben May, economist at consultancy Capital Economics. One year ago, the European Central Bank expected the bloc to recover in the course of 2012, only to see prospects worsen amid financial-market panic.

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