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Stalled recovery adds to pressure on policymakers

The European economic recovery has weakened, with the euro-zone now at risk of recession and countries outside the region feeling the effects on their exports. While the euro-zone’s peripheral countries are making some encouraging fiscal and economic progress, conditions in the region’s core have deteriorated markedly and even Germany is now struggling to grow. But EU authorities remain reluctant to loosen the fiscal restraints on indebted governments and calls for a fiscal boost in Germany have so far fallen on deaf ears. We expect the ECB to submit to pressure for full-blown quantitative easing soon, but its support will be limited by ideological and political constraints.

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