The sharp drop in annual consumer inflation to 1.2 percent,
confirmed by the EU’s statistics office Eurostat on Thursday,
highlights the risk of deflation in the euro zone, which slipped
into its longest ever recession at the start of this year.

Prices in Belgium, Germany, Greece and France fell in April
from March, and Greece remained in deflationary territory for a
second month, along with non-euro country Latvia which is due to
become the bloc’s 18th member next year.

Falling world oil prices are behind the drop in inflationary
pressures, and the European Central Bank cut interest rates to a
record 0.5 percent low this month, aware that inflation risks
falling further below their target of just under 2 percent.

Energy prices fell 1 percent in April from March in the euro
zone, the single biggest drop in Eurostat’s index.

But falling prices also highlight how households are not
spending and companies are not investing, dampening the pace of
a recovery that could emerge later this year.

The euro zone, which generates almost a fifth of global
output, wallowed in recession for a sixth straight quarter at
the start of this year, Eurostat said on Wednesday, and
economists do not expect growth until next year.

The impact of the bloc’s debt and banking crisis was evident
in the euro zone’s international trade balance for March because
a 22.9 billion euro ($29.5 billion) surplus was due to a 10
percent fall in imports and no increase in exports compared to
the same month a year ago, on a non-seasonally adjusted basis.

Demand in Asia and the Americas for the euro zone’s cars,
wine and luxury goods is one of the few things that could help
lift the bloc out of recession and the lack of export growth in
March is likely to be of some concern to policymakers.

While Spain is regaining some of its business dynamism and
exports are growing again, Germany and France, Europe’s two
largest economies, have stagnated, with the French economy
tipping into recession in the first quarter of this year.

Confidence in the euro zone’s economy dropped for a second
month in a row in April, and morale darkened significantly in
the core countries, particularly in France and Germany.

($1 = 0.7775 euros)

(Reporting by Robin Emmott; editing by Rex Merrifield)

Falling output across the bloc meant the 17-nation economy is in its longest recession since records began in 1995.

It shrank 0.2 percent in the January to March period, the EU’s statistics office Eurostat said on Wednesday, worse than the 0.1 percent contraction forecast by a Reuters poll.

“The misery continues,” said Carsten Brzeski, a senior economist at ING in Brussels. “Almost all core countries bar Germany are in recession and so far nothing has helped in stopping this downward spiral.

As well as France, the economy shrank for the quarter in Finland, Cyprus, Italy, The Netherlands, Portugal and Greece. Data last month showed Spain’s economy contracted for a seventh consecutive quarter.

Germany, which generates almost a third of the euro zone’s economy, grew by a weaker than expected 0.1 percent, skirting the recession that France succumbed to, but highlighting the devastating impact of the euro zone’s debt and banking crisis that has driven unemployment to a record 19 million people.

France’s downturn was its first in four years, after contracting by 0.2 percent in the first three months of the year, as it did in the last quarter of 2012.

Italy, the euro zone’s third largest economy, reported its seventh consecutive quarter of decline, the longest since records began in 1970.

The euro zone’s recession is now longer than the five quarters of contraction that followed the global financial crisis in 2008/2009, although it is not as deep.

The euro fell to a six-week low against a buoyant dollar, hurt by the anemic figures which kept alive chances of more monetary easing by the European Central Bank.

The ECB cut rates to a record low earlier this month and its head, Mario Draghi, said it was ready to act again if the economy worsened.

Some EU leaders, who meet for a summit in Brussels next week/ are also trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009.

But it will be tough for another rate cut and a softening of austerity – even if either happens – to break a cycle in which governments are cutting spending, companies are laying off staff, Europeans are buying less and young people have little hope of finding a job.

“Any recovery is going to be excruciatingly slow,” said Nick Kounis, head of macroeconomic research at ABN AMRO.

A Reuters poll of 65 economists suggested growth should return in the second half of this year, but there will no strong recovery until at least 2015.

RECOVERY?

Interest rates at a record low and the ECB’s promise to buy the bonds of struggling governments have calmed talk of a euro zone break-up, driving up equities and cooling bond yields.

But the reality for companies and households is of tight credit and frozen investment, meaning demand in places such as China and the United States is the best hope for renewed growth.

Of most concern is the difference between Europe’s two largest economies, Germany and France. It looks narrow over the first three months of the year, but European diplomats and officials fear France will continue to lag far behind, threatening the cohesion of the twin policy motor that has traditionally driven the European project.

French growth has faltered as unemployment undermines the confidence of both consumers and businesses, which are struggling to cope with government belt-tightening while Spain remains deep in the mire.

Even Germany will find it difficult to reach take-off speed alone. Its statistics office revised down its figure for the end of 2012 to show a contraction of 0.7 percent, from 0.6 percent.

Thomas Gitzel at VP Bank sees a stronger performance in the second quarter as construction, hit by the winter, bounces back.

But he added: “The current global economic backdrop makes a sustained recovery more unlikely. Difficulties in France and disappointing growth figures from China are strewing stones in the path of the Germany economy. Hopes of significantly higher growth could be premature.”

The latest GDP figures will add fuel to a burgeoning debate about how to balance the need to cut debt with measures to foster growth.

Italian and French leaders have been vocal in calling for an end to austerity and European Commission President Jose Manuel Barroso has said it has reached the limits of public acceptance.

(Additional reporting by Gavin Jones in Berlin and Ingrid Melander in Paris; Writing by Mike Peacock and Robin Emmott Editing by Jeremy Gaunt.)

The move, described as ‘historic’ by Germany’s Finance Minister Wolfgang Schaeuble, redoubles pressure on Switzerland to open up account details and will likely pave the way for Austria to ditch its own bank secrecy for foreigners.

By giving the European Commission the go-ahead to negotiate with Switzerland, Liechtenstein, San Marino, Andorra and Monaco, EU finance ministers hope to push for the same rules to be applied to these countries as within the European Union.

The talks had long been opposed by EU members Luxembourg and Austria, which were seeking to defend their own bank secrecy, but on Tuesday their finance ministers dropped those objections.

“In the battle against tax evasion, what we achieved today was undoubtedly a step forward,” Algirdas Semeta, the European commissioner in charge of tax policy, told reporters after the meeting of ministers.

The Swiss government gave a guarded response. A spokesman for Switzerland’s department of finance underscored the country’s willingness to cooperate and said it would now consider how to respond.

Austria’s support is a symbolically important gesture that takes it closer to ending its own bank secrecy for foreigners, bringing it into line with the rest of the EU.

Most developed countries share information on taxpayers and depositors “on demand”. But since this requires the authorities in the requesting jurisdiction to suspect wrongdoing, it only has limited impact in uncovering unlawful behavior.

Automatic exchange of information allows tax authorities to more easily spot tax evasion or illicit money flows.

HUGE STEP

Austria has been the last EU holdout on bank secrecy after Luxembourg changed tack last month.

“This is a huge step further for Austria,” Finance Minister Maria Fekter told her peers in part of the meeting of EU ministers that was broadcast.

Austria has yet to sign up to that EU bank information exchange but Fekter’s comments indicate this may change.

Last month, Luxembourg said it would lift bank secrecy rules for European Union citizens who have savings based there.

Its decision followed lobbying by Germany, bolstered by the case of former French budget minister Jerome Cahuzac, who is under investigation for fraud after admitting lying about having a Swiss bank account.

Earlier on Tuesday, Austria’s Chancellor Werner Faymann told reporters that it was important to crack down on tax cheats to ensure everyone pay their fair share at a time of tight budgets.

Seventeen of the EU’s 27 members, including Britain, France and Germany, said in a joint statement in Brussels they were pushing for a global standard on bank information sharing to tackle tax evasion. “There is now real momentum building towards a step change in the international community’s approach to tackling evasion,” a British diplomat said.

(Additional reporting by Jan Strupczewski, Annika Breidthardt and Mike Shields in Vienna; Editing by Susan Fenton, Ron Askew)

EU commissioners backed EU Trade Chief Karel De Gucht’s
proposal to levy the provisional duties by June 6 and make
Chinese solar exports less attractive, two officials said.

Shares in German manufacturers SolarWorld, Phoenix
Solar and Centrotherm rose as much as 7
percent on the decision, while Frankfurt-listed shares in
China’s Suntech were down more than 4 percent.

The investigation into accusations of dumping is the biggest
the commission has launched, but Brussels is trying to tread a
careful path, knowing it needs China, the EU’s second largest
trading partner, to help the bloc pull out from recession.

China’s ambassador to the World Trade Organisation, Yi
Xiaozhun, called the decision a mistake although he declined to
comment on any possible retaliation.

“It will send the wrong message to the world that
protectionism is coming,” Yi told Reuters in Geneva on
Wednesday.

China’s Commerce Ministry on Thursday called for dialogue.
“We don’t want to see a trade war between the two sides and we
hope the EU can cautiously make the ruling decision on China’s
solar panel products,” spokesman Yao Jian told reporters.

Given that Germany and France are seeking to increase
exports to China, De Gucht will try for a negotiated solution
with new Chinese Commerce Minister Gao Hucheng before an EU
deadline in December to cement the levies for up to five years.

That could mean agreeing a minimum price at which all solar
panels makers selling in Europe adhere to, diplomats said.

The EU duties, which will come into effect once the
commission publishes the decision in its Official Journal, will
be set at an average of 47 percent, officials said.

Trade specialists from all 27 EU countries will be consulted
on May 15 at a meeting in Brussels and are expected to back the
decision, although their position is non-binding.

The European Commission declined to comment.

Chinese solar panel production quadrupled between 2009 and
2011 to more than the entire global demand. EU producers say
Chinese companies have captured more than 80 percent of the
European market from almost zero a few years ago, exporting 21
billion euros ($27 billion) to the European Union in 2011.

As a result, Chinese-made panels are as much as 45 percent
cheaper than those made in Europe, industry executives say.

Europe accounted for half of the global market in 2012,
which was worth $77 billion, according to research firm IHS.

“POISONOUS” DUTIES

The commission started its investigation in September,
taking up a complaint by a group of mainly German and Italian
companies led by SolarWorld, which was once Germany’s biggest
solar group but now has 900 million euros in liabilities. Its
smaller rival Q-Cells filed for insolvency last year.

The United States levied its own duties on Chinese solar
energy products in 2012, arguing that China’s rapid expansion
into the industry had created a massive oversupply.

Solar is the leading source of renewable energy after hydro
and wind, and companies are in a race to win contracts as
countries seek to limit pollution and global warming.

Germany was the world’s biggest market last year, followed
by China, Italy and the United States, according to the European
Photovoltaic Industry Association. Germany installed more solar
panels than any other country in 2012, at 7.6 gigawatts of newly
connected systems, while China was second with 5 gigawatts.

Solar covers about 3 percent of Europe’s electricity demands
but government support for developing the green energy source
varies widely across Europe with the euro zone debt crisis
dampening government support in Spain and Greece.

Europe’s stance on solar energy is complicated by the fact
that some in the EU solar sector, notably importers and
installers, support cheap panel imports from China.

They say EU tariffs would be damaging for efforts to develop
clean energy. Some fear retaliation by Beijing.

“Protective duties are poisonous for the solar industry,”
said Udo Mohrstedt, chief executive of Germany’s IBC Solar.
“These guarding measures will endanger more than 70,000 jobs in
medium-sized companies in Germany alone.”

The issue has overshadowed relations as Canada and the EU
try to deepen economic ties through a trade deal that could
generate $28 billion a year in new business and commerce.

Canadian Natural Resources Minister Joe Oliver, on a
week-long lobbying trip to Europe, accused the EU of breaking
international trade rules and discriminating against Canadian
exports.

“We are going to take whatever action we need to, and we may
well go to the WTO,” Oliver told a news conference. “We will
defend our interests vigorously.”

The WTO has the power to order the EU to change its rules if
they are found to be unfair, but the process is lengthy.

Canada’s oil sands are the world’s third largest crude
reserves, but most are in the form of tar sands. Extraction from
the clay-like deposits takes more energy than pumping
conventional oil and results in higher carbon emissions.

The European Commission has proposed labelling oil from tar
sands as “highly polluting” to help implement an EU goal to cut
the carbon intensity of its transport fuels by 6 percent by
2020.

The Commission denies that it is singling out Canadian oil
as its proposal also defines other unconventional sources of oil
as carbon-intensive.

Asked whether the trade deal could be signed even if the EU
goes ahead with its fuel labelling, Oliver said: “Yes … These
issues are entirely separate.”

He said Canada did not intend to use the issue as a
bargaining chip.

Talks on a free trade deal began in 2009 and are in the last
stage, diplomats say, but have stumbled over a series of issues.

Canada, which is anxious to find new markets for its oil and
gas outside the United States, argues that Europe should embrace
it as a stable, reliable energy producer.

Yet many in the environment lobby say long-term investment
in new heavy crude infrastructure and development would badly
undermine attempts to limit climate change.

Twelve climate scientists and energy experts said in a
letter to Oliver this week that Canadian policy was delaying the
transition to an economy that was less reliant on carbon.

“We are at a critical moment,” the group, among them
academics from Harvard in the United States, and from British
Columbia and Queen’s universities in Canada, wrote in the
letter, seen by Reuters. “The responsibility for preventing
dangerous climate change rests with today’s policymakers.”

A report on Wednesday indicated the European Commission’s
tar sands proposal would shift investment towards lower-carbon
oil sources and could save up to 19 million tonnes of carbon
dioxide per year – equivalent to removing 7 million cars from
Europe’s roads.

(Additional reporting by Barbara Lewis; Editing by Kevin
Liffey)

EU Commissioners backed EU Trade Chief Karel De Gucht’s
proposal to levy the provisional duties by June 6 and make
Chinese solar exports less attractive in Europe, two officials
said, confirming news first reported by Reuters.

Shares in German manufacturers SolarWorld, Phoenix
Solar and Centrotherm rose as much as 7
percent on the decision, while Frankfurt-listed shares in
China’s Suntech were down more than 4 percent.

The investigation into accusations of dumping is the biggest
the Commission has launched, but Brussels is trying to tread a
careful path, knowing it needs China, the EU’s second largest
trading partner, to help the bloc pull out from recession.

Germany and France are also seeking to increase exports to
China, meaning De Gucht will try to seek a negotiated solution
with new Chinese Commerce Minister Gao Hucheng before an EU
deadline in December to cement the levies for up to five years.

The EU duties, which will come into effect once the
Commission publishes the decision in its Official Journal, will
be set at an average of 47 percent, officials said.

Trade specialists from all 27 EU countries will be consulted
on May 15 at a meeting in Brussels, and are expected to back the
decision, although their position is non-binding.

The European Commission declined to comment.

Chinese solar panel production quadrupled between 2009 and
2011 to more than the entire global demand. EU producers say
Chinese companies have captured more than 80 percent of the
European market from almost zero a few years ago, exporting 21
billion euros ($27 billion) to the European Union in 2011.

As a result, Chinese-made panels are as much as 45 percent
cheaper than those made in Europe, industry executives say.

Europe accounted for half of the global market in 2012,
which was worth $77 billion, according to research firm IHS.

“DISASTROUS” DUTIES

The Commission started its investigation in September when
it judged there were grounds to take up a complaint by a group
of mainly German and Italian companies led by SolarWorld, which
was once Germany’s biggest solar group that now has 900 million
euros in liabilities. Its smaller rival Q-Cells filed
for insolvency last year.

The United States levied its own duties on Chinese solar
energy products in 2012, arguing that China’s rapid expansion
into the industry has created a massive oversupply.

Solar is the leading source of renewable energy after hydro
and wind, and companies are in a race to win contracts as
countries seek to limit pollution and global warming.

Germany was the world’s biggest market last year, followed
by China, Italy and the United States, according to the European
Photovoltaic Industry Association. Germany installed more solar
panels than any other country in 2012, at 7.6 gigawatts of newly
connected systems, while China was second with 5 gigawatts.

Solar covers about 3 percent of Europe’s electricity
demands, but government support for developing the green energy
source varies widely across Europe with the euro zone debt
crisis dampening government support in Spain and Greece.

Europe’s stance on solar energy is complicated by the fact
that some in the EU solar sector, notably importers and
installers, support cheap panel imports from China.

They say EU tariffs would be damaging for efforts to develop
clean energy. Some fear retaliation by Beijing.