Moderate improvements in European shares but confidence still shaky

Spain and Italy announce austerity measures as Sarkozy and Merkel plan meeting to discuss eurozone e

European shares have inched upwards as the Japanese and US economies have both performed better than predicted by analysts.

Although the Japanese economy shrank by 1.3 per cent from April to June, this represents a smaller contraction than feared by analysts. Likewise, although US consumer confidence remains low in the wake of the credit downgrade, the retail sector has performed better than expected.

The BBC reports that Italy has announced budget cuts of 45bn euro over the next two years, and Spain plans to reduce spending by four per cent, as the European Central Bank has intervened to buy up both countries' bonds.

Nicolas Sarkozy and Angela Merkel are due to meet tomorrow to discuss the future of the eurozone economies.

Although so far a full blown eurozone crisis has been averted, Europe is likely to see widespread austerity measures for years to come, as politicians act to reassure investors. It is too early to say whether the global financial system will crash again, as they did in 2008, as confidence in US and European markets remains shaky.