The outlook for the European economy has deteriorated as the euro-zone debt crisis has broadened to envelop bigger countries like Spain. Despite the growing talk of the need for growth across the currency union, very weak activity in most areas - including the core – is continuing to hinder fiscal consolidation. But the short-term support measures available to policymakers lack firepower, while Germany and other Northern economies remain strongly resistant to more substantial moves towards fiscal union. Against this background, we stick to our position that a limited euro-zone break-up could commence before the end of this year.
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