German economic policy is "bankrupt", economists have said.

The declaration was made as it emerged that Europe's biggest economy has now suffered a worse "lost decade" than Japan and is deeper in recession than any other major economy.

On a day of dismal news for the European economy, official figures also showed that Italy, Austria, Spain and the Netherlands are facing their biggest combined slump in post-war history, sparking warnings about the potential for social unrest throughout Europe.

German economy shrinks most in 22 years

Anxiety over rate cut undermines euroWithin hours,
the managing director of the International Monetary Fund (IMF) warned that the global recession is far from over and that people must prepare themselves for more financial shocks. Dominique Strauss-Kahn said the world remains in the grips of a "Great Recession" and played down talk of "green shoots".

Germany's economy shrank by 3.8pc in the first three months of the year
- a record contraction that is almost double the fall of Britain's gross domestic product in the first quarter. The figures sparked attacks on Germany's government, which has repeatedly shown reluctance to bail out either its economy or financial system.

In figures described by economists as "disastrous",
Eurostat also reported that Italy shrank by 2.4pc, Austria and the Netherlands by 2.8pc, Spain by 1.8pc and France by 1.2pc. The statistics underline the fact that although Britain's financial system was badly hit in the early months of the crisis, the UK's economy has not fared as badly as its continental rivals, contracting by 1.9pc in the first quarter.