The European Commission this week announced its intention to put five euro-zone countries, including France and Italy, into Excessive Deficit Procedures. This will concentrate investors’ minds on the fiscal risks in these countries and increases the chance of turmoil in the markets if their governments flout the rules. That said, Italy’s experience in 2018 shows that a fiscally irresponsible government might cause chaos in the markets, but that won’t necessarily hinder economic growth. Next week, we expect the Riksbank to leave interest rates unchanged and June’s surveys to show a deterioration in economic sentiment in the euro-zone.
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