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Euro-zone activity indicators continue to point to a broad-based worsening in economic conditions. Admittedly, the prospect of further falls in CPI inflation (see Chart) following the recent plunge in the oil price is at least one piece of good news for …
3rd July 2012
We have long argued that it may be in the best interests of Greece to leave the euro-zone. And while some commentators have suggested that Greece would benefit from waiting until it can fully cover its financing needs before leaving, we think that it …
The latest data on labour market conditions and the manufacturing sector in the euro-zone confirm an overall picture of economic weakness. This provides a difficult backdrop against which European policymakers are attempting to find a solution to the …
2nd July 2012
The improvement in sentiment towards the euro-zone following last week’s EU summit is, in our view, likely to prove short-lived. Indeed, we still expect the resolution to the euro-zone crisis to involve one or more countries exiting the single currency. …
Against a background of low expectations, the changes agreed at the EU Summit to tackle several issues which threatened to inhibit the effectiveness of short-term support measures came as a pleasant surprise, as reflected by the positive market response. …
29th June 2012
The latest monetary data confirm that the ECB’s earlier liquidity measures are not yet having the desired effect. While money supply growth is picking up, bank lending to the private sector remains stagnant. … Euro-zone Monetary Indicators Monitor …
Euro-zone CPI inflation was unchanged in June, but this does not alter our view that it will fall sharply over the coming months and the ECB will cut interest rates at its meeting next week. … Euro-zone Flash CPI …
With the euro-zone’s debt crisis intensifying again and the economic downturn deepening and broadening, we think that the ECB will opt to cut interest rates by 25bps in July. But the Bank seems unlikely to announce more long-term lending, believing that …
28th June 2012
June’s EC survey mirrors the picture from other timely indicators lately that the euro-zone is in a deepening and broadening recession. This further underlines the need for policymakers to come up with bold support measures at the EU summit today and …
The recent sharp fall in the oil price has prompted us to revise down our euro-zone CPI inflation forecast for this year and next. But this will not prevent the region from falling into a deep recession. … Lower oil price will not boost euro-zone …
27th June 2012
The latest fiscal data provide further support to the view that recessions in the southern euro-zone economies are causing the governments there to fall behind their fiscal targets. … Euro-zone Fiscal Monitor …
The €100bn bail-out ‘ceiling’ for Spanish banks may provide a smaller ‘safety margin’ than the recent independent audits suggested and won’t address the country’s broader economic and fiscal problems. … Spain: A €100bn bail-out ‘ceiling’ is not high …
26th June 2012
Together, the radical plans that are up for discussion at this week’s Summit could be the key to the euro-zone’s survival. But with Germany opposed to providing more funds without central budget supervision and France against ceding power to Germany, …
25th June 2012
The formation of a coalition Government headed by New Democracy has reduced the chances of Greece exiting the euro-zone imminently. But the political situation remains precarious and the Government’s first major test will be to try to negotiate a better …
June’s German Ifo survey reinforced the message already given by the ZEW and PMI surveys earlier this week that the euro-zone’s main growth engine has stalled. … German Ifo Survey …
22nd June 2012
Italy may have recently avoided the spotlight thanks to developments in Greece and Spain, but its dreadful debt dynamics mean that it remains a ticking time-bomb for the euro-zone. … Will Italy need a bail-out …
21st June 2012
Plans for the euro-zone bail-out fund to purchase sovereign debt look unlikely to have a lasting effect on governments’ borrowing costs unless accompanied by a significant increase in firepower. … Latest bazooka may lack …
20th June 2012
The economically optimal re-configuration of the euro-zone would involve the survival of a core Northern euro incorporating Germany, Austria, the Netherlands, Finland, and Belgium. France’s position is questionable but the Southern and peripheral …
19th June 2012
The recent further rise in Spanish government bond yields underlines the fact that the banking bailout will not address the country’s broader fiscal problems. A sovereign bail-out is all but inevitable. … Spain moving quickly towards a sovereign …
June’s plunge in the headline German ZEW index provides further support for the view that the intensifying debt crisis is starting to hit Germany pretty hard. … German ZEW Survey …
New Democracy’s narrow victory in Sunday’s general election will ease concerns of an imminent and disorderly Greek exit from the euro-zone. But it remains unlikely that euro-zone policymakers will sanction the measures needed to guarantee Greece’s …
18th June 2012
Our prediction last week that market optimism towards the Spanish banking bail-out would be short-lived was borne out more quickly and decisively than even we had anticipated. Even by the standards of this crisis, the response was swift and damning. But …
April’s industrial production figures provided a further indication that the euro-zone’s narrow escape from technical recession in Q1 will not last very long. … Euro-zone Industrial Production …
13th June 2012
Talk of an EU banking union provides some hope that policymakers are starting to address one of the potential triggers for a euro-zone break-up. But the prospect of a full-blown banking union seems as distant as that of a fiscal union and it could not …
12th June 2012
Growing speculation that Spain may be about to gain a banking sector bail-out with limited conditionality has raised expectations that euro-zone policymakers are beginning to take a more flexible approach to dealing with the debt crisis. But we still …
11th June 2012
Spain’s banking bail-out may help to pull the country away from the centre of the euro-zone storm for a while. But we doubt that it is the only support that the country will need. … Spain will need more …
The euro-zone may have narrowly avoided falling back into recession around the turn of the year, but timelier data have revealed that economic prospects are deteriorating. Activity surveys, such as the composite PMI, now point to pretty sharp falls in …
8th June 2012
Events are moving fast in Spain. After denials from Spanish government officials in recent months about the need for a bail-out, external assistance now seems inevitable with EU officials reported to be weighing up some form of package for Spain. We …
7th June 2012
The European Central Bank (ECB) continued to indicate that it is up to national policymakers to take further actions to address the euro-zone crisis, rather than the Bank itself. … ECB unwilling to do more just …
6th June 2012
The second euro-zone GDP release for Q1 confirmed that the economy narrowly avoided a technical recession. But with April’s German industrial production data confirming that even the region’s healthiest economy is now struggling, it will not be long …
Recent developments in the euro-zone have raised the question of whether our central scenario of a limited form of currency union break-up - involving the departure of Greece and one or two of the other small peripheral economies - is too optimistic. …
4th June 2012
The latest data on the state of the euro-zone labour market and manufacturing sector confirm that the economic downturn is broadening and gathering pace. This clearly further reduces policymakers’ chances of stemming the debt crisis. … Euro-zone Unemp. …
1st June 2012
The further escalation of the euro-zone crisis has intensified the pressure on the European Central Bank (ECB) to take further remedial action. But while President Draghi may hold open the prospect of further support for the region’s banks after the …
31st May 2012
While some of the concerns over TARGET2 imbalances might be over-done, they are nonetheless a reminder of the depth of the economic and financial problems facing the currency union. … Another shot at …
May’s fall in euro-zone CPI inflation and the drop in the German unemployment rate were rare pieces of good news for the beleaguered euro-zone. But the recent sharp falls in measures of business sentiment and activity and the deepening debt crisis mean …
The Swedish GDP figures for Q1 suggest that the economy is withstanding the eurozone fiscal crisis pretty well. But we still think that Sweden is set for a bumpy ride andthat the Riksbank will reduce interest rates further. … Swedish GDP (Q1 …
30th May 2012
A worsening domestic economy and limited scope for the state bank reconstruction fund (FROB) to defuse Spain’s banking crisis, make an EU/IMF bail-out package look unavoidable. But in our view, it is unclear that such a bail-out can address Spain’s …
The latest monetary data confirm that the ECB’s generous liquidity measures are not prompting banks to lend more to the rest of the economy. … Euro-zone Monetary Indicators Monitor …
May’s EC business and consumer survey underlined the enormity of the task facing euro-zone policymakers if they are going to convert the growing “consensus” on the need for stronger growth across the region into actual results. … Euro-zone EC Survey …
The Swedish GDP figures for Q1 suggest that the economy is withstanding the euro-zone fiscal crisis pretty well. But we still think that Sweden is set for a bumpy ride and that the Riksbank will reduce interest rates further. … Swedish GDP …
Recent fiscal data suggest that Greece and Spain will struggle to meet their existing budget deficit forecasts for 2012 without implementing further austerity measures. But for now at least, the remaining troubled euro-zone economies are broadly on track …
29th May 2012
Markets have reacted positively to some signs of growing support for the pro-bail-out parties amongst Greek voters. But the formation of a government headed by New Democracy is unlikely to end deposit runs or the economic slump. Accordingly, the rest of …
28th May 2012
European policymakers focused again last week on the need for growth in the region, with Wednesday’s informal EU summit ending in pledges to speed up structural reforms, strengthen job creation and encourage investment using “Project Bonds”. But all of …
Even after the recent falls, the euro exchange rate does not appear to incorporate a significant “break-up premium”. As such, we see scope for further considerable declines as the crisis continues. … The euro has yet to price in a …
24th May 2012
Many commentators argue that even though Greece might benefit from leaving the euro-zone in the long run, an immediate exit would result in the Government running out of money with potentially catastrophic results. But we are not wholly convinced by this. …
May’s business surveys confirmed the picture of falling economic activity in the euro-zone as a whole and suggest that the downturn has now really hit Germany. … Euro-zone Composite PMI & German Ifo Survey …
A partial break-up of the euro-zone, with the weakest economies leaving and the core holding together, could be part of the solution to Europe’s problems, rather than the disaster that many assume. As such it would ultimately be positive for the rest of …
23rd May 2012
The renewed escalation of the euro-zone crisis has prompted calls for the European Central Bank to take more action. But whilst the ECB has scope to provide more support without taking unacceptable risks with inflation or its own solvency, there are major …
GDP data for Q1 this year showed Norway’s economy expanding at a very healthy pace. But on balance, we think the adverse effects of the euro-zone debt crisis will prompt Norges Bank to cut its key policy rate further this year. … Norwegian GDP (Q1 …
22nd May 2012
Despite much confusion on this point, there does not appear to be any insurmountable legal barrier to a country leaving the euro and remaining within the European Union (EU), even without the prior agreement of other member states. Nor is it absolutely …
