Growth prospects improve, but crisis unresolved

The European economy has shown further signs of recovery, with the euro-zone finally emerging from recession in the second quarter and other parts of the continent also faring better. But growth in the peripheral countries of the currency union looks set to remain well below the rates needed to tackle the problems of high unemployment and crippling debt. Meanwhile, hopes of a more accommodating stance amongst the core countries after the German election look unlikely to be fulfilled and steps towards banking and fiscal union remain painfully slow. Against this background, the region’s debt crisis remains unresolved and the lingering prospect of additional bail-outs and even sovereign debt restructurings could yet see market pressures re-escalate.