Ukraine fears stall eurozone's recovery

After four quarters of meager growth, the fragile economic recovery in the 18-nation eurozone creaked to a halt in the second quarter of 2014.

Growth was zero, after only 0.2 percent growth in the first quarter, according to a report Thursday from Eurostat, the European Union's statistics office.

Now, who will get out and push? The European Central Bank, with a further monetary stimulus? Or governments in France and Italy, which have dragged their heels in making their economies more business-friendly?

Either could help, or both, especially if the Ukraine crisis mushrooms with a Russian invasion that would scare off business investment even more - and extend one bad quarter into an outright recession.

Few economists think the eurozone will slip into its third recession in six years. Most say they expect Europe to accelerate slowly as member countries work down debt - not an ideal outlook for a global economy far short of firing on all cylinders.

"I don't think today's numbers make that picture any worse," said Tom Rogers, senior economic adviser to the EY eurozone forecast. "It's still going to be a slow recovery for the eurozone, and it will be a slow recovery for eurozone markets for imports from the rest of the world."

Germany's economy shrank by 0.2 percent in the second quarter from the previous three-month period. Economists aren't too concerned because they think a lot of the growth simply migrated to the first quarter because of a very warm winter that allowed construction projects to start early.

Germany remains the continent's standout. It has low unemployment and cut business taxes and costs years ago.

But rumors of war are taking a toll across Europe. The "Putin effect," as economists at Berenberg Bank call it, comes from fears that Russian President Vladimir Putin may back an invasion of eastern Ukraine.

Though eurozone exports to Russia are only 0.8 percent of the bloc's annual gross domestic product, the crisis has hurt business confidence - executives are wary of risking cash for expansion.

Meanwhile, France and Italy balk at politically tough reforms that would lower costs for businesses. France's economy was flat in the second quarter. Italy's shrank 0.2 percent, the 11th drop in 12 quarters.

Structural reforms include easing rigid rules on hiring and firing and, especially in Italy's case, reducing bureaucracy and corruption. France has tried cutting payroll taxes.

Europe's core economies have faltered even as the peripheral economies recover from the debt crisis that ravaged the currency union.

Spain and Portugal showed robust growth of 0.6 percent. And Greece, whose economy shrank by about 25 percent in the last few years, is on the mend. Its GDP was only 0.2 percent smaller than the year before, the smallest rate of decline in nearly six years.

The European Central Bank will likely hear calls for more monetary stimulus. It could buy large amounts of financial assets such as government bonds and pump new money into the financial system in hopes of seeing it appear as loans to companies and consumers. But that's tricky in a currency zone with 18 members.

The ECB is worried about inflation, too, which at just 0.4 percent has raised fears of a downward price spiral that kills growth by making consumers delay spending in hopes of future bargains.

ECB head Mario Draghi is pushing back, saying governments must make the tough changes.

Italy's troubles come from too much red tape, he said at his last news conference: "That has nothing to do with monetary policy."