While the news on the euro-zone economy has improved a bit in the last month or two, 2012 could still turn out to be crunch year for the currency union. Fiscal progress in the peripheral economies has continued to be hindered by a lack of growth and a number of the core economies are also facing recession. And although the ECB’s liquidity operations have eased some of the immediate market pressures, the policymakers continue to lack the fundamental firepower to tackle the crisis decisively. Against that background, our assumption is that a limited form of euro-zone break-up will commence later this year, with adverse economic and financial consequences across both the euro-zone itself and in other parts of Europe.