Most of Europe’s main stock indexes lost ground after the data suggested that the debt and economic problems in countries like Greece and Italy were infecting the rest of the 17-country euro zone. The crisis has led a number of governments to sharply cut spending while weathering market turmoil that has damaged business and consumer confidence.

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany said on Tuesday in Paris that they would take steps toward a closer political and economic union in the euro zone and would work toward balanced budgets and debt reduction. But resolving the sovereign debt crisis would be much harder if the economies continue to stall or shrink. European markets were closed by the time the statement was issued, but American markets sold off after the news on worries over Europe.

Gross domestic product in the euro zone rose a mere 0.2 percent in the second quarter of 2011 from the first quarter, when growth had advanced by a healthy 0.8 percent, according to Eurostat, the European Union statistics agency. Quarterly economic growth across euro zone was the slowest since mid-2009.

G.D.P. growth in Germany, which has been the tractor hauling the rest of Europe, barely budged, rising only 0.1 percent from the first quarter, when the economy had expanded a robust 1.3 percent, the German Federal Statistical Office said. Quarter-on-quarter growth in the three months through June was well below forecasts of 0.5 percent. The German figures come after data on Friday showed that the French economy was at a standstill in the second quarter, leaving Europe’s two largest economies barely growing.

Because government revenue is directly tied to economic growth, the two pillars of the European economy may be less able — and less willing — to prop up the weaker members.

“It’s the biggest potential risk,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “I don’t worry so much about a moderation of growth two years after a recession. What is different this time is the potential escalation of the sovereign debt crisis.”

European stocks initially fell sharply on Tuesday, but recovered late in the day. The benchmark indexes in Germany and France all closed down less than 1 percent, and the euro fell to $1.4407 from $1.4444.

The German economic rebound since the recession of 2009, driven by exports of cars, machinery and other goods to China and other emerging markets, has helped counterbalance weak economies in southern Europe. But if Germany slows for an extended period, the challenges posed by the European sovereign debt crisis will become that much more daunting.

Despite signs that austerity programs were hurting growth, debt-ridden governments probably have little choice but to continue to cut spending to persuade their creditors that they can meet their debt obligations. Equally important, the European Central Bank has made it clear that it would support Italy and Spain by buying their bonds only if they continued to cut their deficits.

The slowdown in Germany was caused by lower household consumption and construction investment, the German statistics office said. In addition, imports rose faster than exports and led to a buildup of inventories.

Mr. Krämer of Commerzbank said that a warm spring meant that construction projects in Germany had begun earlier than usual, subtracting some activity from the second quarter.

Germany had been enjoying a period of unusually high growth, during which the number of people employed rose 1.4 percent, to 41 million people from a year earlier, the German statistics office said Tuesday. Even with the slowdown in the second quarter, the economy still grew 2.7 percent from a year earlier.

The Federal Statistical Office revised its figures for previous quarters, which meant that, contrary to earlier data, German output remained below its peak in late 2008.

The slowdown was foreshadowed by earnings from companies like Siemens and Deutsche Bank that fell short of analysts’ expectations, reinforcing the feeling that the pace of German growth was flattening. Surveys of business sentiment have also pointed to slower growth.

Greece is already in recession, while growth in Spain slowed to 0.2 percent from 0.3 percent in the previous quarter.

Trade data from Eurostat contributed to the gloomy picture. Seasonally adjusted figures showed that exports and imports in the euro area slowed in June, while the trade deficit widened to 1.6 billion euros ($2.3 billion).

Article source: http://www.nytimes.com/2011/08/17/business/global/euro-zone-economy.html?partner=rss&emc=rss