Last week’s successful first EFSF bond issue was hailed by some as a strong vote of confidence in the euro-zone. We are not so sure. The rise in Portuguese bond yields back up to the 7% danger level suggests that the facility may soon be needed again. Meanwhile, although the most recent economic data has continued to paint a reasonably upbeat picture, the ECB’s increasingly hawkish tone and the resulting upward pressure on the euro exchange rate pose an additional threat to the sustainability of the recovery in the region.
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