The global financial crisis is pushing the whole European Union into recession, official forecasts said Monday as South Korea unveiled its own $8.5 billion stimulus package against the turmoil. The European Commission forecast a short shallow recession for the 27-nation EU, predicting the bloc's combined economy would shrink 0.1 percent in both the third and fourth quarters of 2008. “The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence,” said EU Economic Affairs Commissioner Joaquin Almunia. The economy of the 15 nations that use the euro shrank 0.2 in the second quarter and is set to contract by 0.1 percent in both the third and fourth quarters, according to forecasts by the EU's executive arm. It is the first time that the eurozone has slumped into recession -which economists broadly define as two consecutive quarters of economic contraction - since the single currency was introduced in 1999. In the face of sharply slowing growth, the commission forecast unemployment would return as a major headache after a steady decline in recent years. It predicted that the unemployment rate in the eurozone would creep up from a record low of 7.2 percent in March to 8.7 percent in 2010. Profits evaporated at top European banks on Monday and authorities worldwide pressed on with efforts to bolster economies against a recession that policymakers said had become a reality for much of the globe. The European Commission said the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year. It called for coordinated action. Richmond Federal Reserve Bank President Jeffrey Lacker said the U. economy was certainly contracting. “I think it's definitely a recession at this point. How deep, how steep, and long it's going to be is uncertain,” said Lacker, who will become a voting member of the Fed's interest rate-setting committee next year. French bank Societe Generale reported an 83.7 percent drop in third-quarter net profit. Net profit fell to 183 million euros ($234 million) with losses from the collapse of US bank Lehman Brothers and other writedowns costing it 1.208 billion euros in pre-tax income. Germany's second-biggest bank Commerzbank said it would take an 8.2 billion euro capital injection from the state and another 15 billion to secure refinancing. It posted a third quarter net loss of 285 million euros. Britain's biggest home lender HBOS Plc raised its hit from the value of risky assets and bad loans to over 5 billion pounds ($8.14 billion) as its takeover partner Lloyds TSB predicted a sharp fall in profits. Lloyds stepped in to buy HBOS in a government-brokered deal after HBOS was hit by a global financial crisis and concerns about its exposure to Britain's weakening housing market. The United States, Germany, France and Britain have offered to inject capital into their banks to prevent systemic meltdown. France has earmarked 360 billion euros for its finance sector and French Prime Minister Francois Fillon was quoted by Le Figaro newspaper on Monday as saying that if the banks did not use the money to lend to businesses, then the government could take direct stakes in them.. The credit crunch, which stemmed from a collapse in the US housing market, has prompted banks to clam up on lending to each other, businesses and households for over a year now. While trillions of dollars in bank bailouts may have averted financial meltdown, the economic outlook is grim. As a result, governments have put together fiscal stimulus packages to ward off the effects of a recession born of the worst financial crisis in 80 years. “The horizon that this forecast offers is dark ... recession is a real risk,” EU Monetary Affairs Commissioner Joaquin Almunia said after the European Commission forecast euro zone growth of just 0.1 percent next year. Official data supported his prognosis. Euro zone manufacturing activity sank in October to a record low. The Markit Eurozone Purchasing Managers Index slumped to 41.1 - the lowest in the survey's 11-year history. Berlin aims to safeguard one million jobs with pump-priming measures, following a 500 billion euro bank rescue package. “With the package we will approve in cabinet next Wednesday, we will definitely mobilize more than 30 billion euros,” Economy Minister Michael Glos told Sunday's Bild am Sonntag newspaper. South Korea announced plans to pump an extra $11 billion into its economy next year. Finance Minister Kang Man-soo said economic growth could fall to its lowest in more than a decade without the stimulus, which will need approval by parliament. Policymakers will gather again to plot their next moves. Euro zone finance ministers meet in Brussels later to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management. And finance chiefs from the “Group of 20” key world economies gather in Brazil later this week to prepare for a Nov. 15 summit of world leaders to chart a way out of the crisis. Central banks will also put their shoulders to the wheel. Following rate cuts from the Fed, China and Japan last week, the European Central Bank, Britain and Australia are expected to cut interest rates by at least 50 basis points this week. The efforts to buoy the world economy encouraged some investors to shop for bargains after world stock markets fell 20 percent in October alone, their worst month ever. The MSCI index of stocks in the Asia-Pacific region outside Japan rose 5.9 percent, up for a fifth consecutive session, and European shares gained 0.4 percent. The global economic upheaval has relegated Tuesday's US presidential election to little more than a footnote for financial markets. Investors have factored in a victory for Democrat Barack Obama, who leads in opinion polls.
