With German manufacturing now shrinking and the country’s growth faltering, the hoped-for engine of recovery is stuttering.

    Germany’s slowdown coincides with slower growth in most other major economies, including China, and euro-zone policy makers are coming under more pressure to ease both fiscal and monetary policy. Even hawks such as Bundesbank President Jens Weidmann are talking about an interest rate cut and President of the European Commission Jose Manuel Barroso is discussing the need for reduced austerity.

    In the meantime, bond yields in debtor nations continue to fall, but this might have more to do with high global liquidity levels and the general hunt for yield than any greater appetite for euro zone assets at this stage.