A lull in the storm

Expectations of stronger policy support from the European Central Bank have prompted a period of relative calm in the euro-zone. But previous lulls have not lasted for very long. There are still few signs of any improvement in the peripheral economies’ deep-seated problems and growing evidence that the economic downturn has spread into the core. Meanwhile, progress towards banking and fiscal union remains predictably slow. Against this background, the crisis looks likely to flare back up over the coming months, further darkening the economic outlook and maintaining a high risk of at least some form of fragmentation of the currency union.