Crisis unsolved as growth outlook darkens

Hopes that the crisis in the euro-zone had been solved by Greece’s debt restructuring and the ECB’s recent liquidity injections have faded. Despite some signs of resilience in Germany, the economic outlook for the peripheral economies and even some other core countries has continued to deteriorate. Meanwhile, the fiscal spotlight has re-focused on the considerable challenges facing Spain. Against this background, we maintain our view that a limited form of euro-zone break-up could commence as soon as this year, with adverse near-term economic and financial effects on the region and other parts of Western Europe.