The euro-zone’s economic recovery came to a complete halt in the second quarter at what shouldhave been a very early stage. There were some temporary factors at play which suggest thatgrowth should resume in Q3 and beyond. But the recovery will be very modest with downsiderisks related to the effects of the Ukraine crisis and forthcoming bank stress tests.
With spare capacity being eroded very slowly at best, euro-zone inflation looks set to remain farbelow the ECB’s target. The combination of weak growth and low inflation will have seriousimplications for the public finances, implying that more punishing austerity might be required.Against this backdrop, additional monetary policy support is desperately needed.
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