The eurozone’s private sector shrank for the sixth straight month in July, owing to a slump in manufacturing, according to a survey released on Tuesday.
Research firm Markit also found that manufacturing in Germany contracted at its fastest pace for three years.
It’s a further blow to EU policymakers battling the bloc’s debt crisis.
Guntram B. Wolff, the deputy director at the Brussels-based Bruegel think-tank, said Europe is suffering from a credibility crisis, that is hitting investments.
“Governments will have a credibility problem until they make progress towards a banking union and towands a final, stronger integration of the eurozone,” he told euronews.
“Investors are losing confidence and are starting to sell because they are afraid to make even more losses than they already have suffered.”
Wolff said he believed that the eurozone debt crisis can be solved with a “fiscal stimulus at the eurozone level.”
He said the European Central Bank needs to be prepared to print more euros and pump them directly into the economy by buying up national sovereign debt.
That process is known as quanatitive easing and has been used by the US and Britain to shore up their own economies.
Germany has long been opposed to quantative easing, fearing higher inflation.