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The common perception that the euro-zone’s core economies are inherently dependent on exports and would struggle to grow outside the single currency is misplaced. They all achieved pretty strong growth before the euro and could probably do so again …
12th November 2012
We’re throwing in the towel on a Greek euro exit in 2012. But that’s a matter of timing, not a change in our fundamental position on Greece or on the broader debt crisis. We still envisage a limited euro-zone break-up, probably commencing in 2013 with the …
While the ECB apparently stands ready to buy peripheral governments’ bonds, President Draghi gave little assurance today about when it might start or how many it might purchase. He also ruled out writing off any of Greece’s debt and gave no firm …
8th November 2012
The passing of the omnibus bill by Parliament last night means that Greece has taken a decisive step towards gaining the next loan tranche of its latest bail-out. But although this has reduced the chance of Greece exiting the euro-zone this year, we still …
The economic data has provided somewhat conflicting messages on the likely strength of the euro-zone economy during the third quarter of the year. While the hard data on industrial production and retail sales have pointed to a better performance than the …
7th November 2012
September’s German industrial production figures poured cold water on recent talk of a recovery in the euro-zone’s biggest economy. … German Industrial Production (Sep. …
We suspect that the recent rise in the euro-zone unemployment rate is a sign of things to come and see the rate peaking at about 13.5% next year. This, together with continued fiscal austerity, is likely to mean pretty sharp falls in households’ real …
6th November 2012
October’s ECB Bank Lending Survey revealed that banks tightened their lending criteria further despite easing strains related to the sovereign debt crisis. And weak demand for loans was a more commonly reported factor holding back lending than short …
5th November 2012
The ECB seems set to remain on standby this month. With just the announcement of its Outright Monetary Transactions (OMT) programme still buoying market sentiment, the Bank has yet to be called upon to act. But we think that the ECB will have to start …
1st November 2012
Over the next couple of crucial weeks, we suspect that Greek and euro-zone policymakers will hatch a deal to prevent, at least temporarily, the collapse of Greece’s rescue package. But as always, there is plenty of scope for a nasty surprise and we still …
The rise in euro-zone unemployment in September, coupled with the high level of CPI inflation, does not bode well for consumer spending in the latter part of 2012. … Euro-zone Unemployment (Sep.) & Flash CPI …
31st October 2012
Recent falls in French consumer spending are a blow to the economy, which has been heavily reliant on households for growth in the past. With unemployment near a record high, banks cutting back their lending and fiscal austerity set to hit households …
The latest Spanish public finances data, which show that Spain is struggling to meet its budget deficit targets, will increase the pressure on the Government to request a bail-out. … Euro-zone Fiscal Monitor (Oct. …
30th October 2012
October’s deterioration in the euro-zone EC business and consumer surveys supported other evidence that the economy started Q4 on a very weak note. The fall in the headline Economic Sentiment Indicator (ESI), from (an upwardly revised) 85.2 to 84.5, was …
The economic and financial effects of one or two small economies leaving the euro-zone would not necessarily be major, but the initial impact of a larger collapse would be rather more serious. Nonetheless, unlike the bankruptcy of Lehman Brothers, a …
29th October 2012
Developments over the past week or so suggest that the core euro-zone governments’ attitudes towards the peripheral economies currently receiving bail-outs may be mellowing. But while this reduces the chance of an imminent exit by Greece, we are not …
The latest monetary data have revealed that commercial banks are still using ECB funds to buy government bonds. Worryingly, though, the downturn in lending to the private sector has accelerated. … Euro-zone Monetary Indicators Monitor (Sep. …
25th October 2012
October’s euro-zone PMI and German Ifo surveys continued to paint a pretty dismal picture of growth prospects in the region as a whole and confirmed that Germany is also suffering. … Euro-zone Composite PMI & German Ifo Survey …
24th October 2012
The core euro-zone banks continued to reduce their claims on the region’s peripheral economies in Q2. And despite recent hopes that the worst of the euro-zone debt crisis may now be over, we expect banks to cut their exposures further. … Banks still …
22nd October 2012
Speculation built last week that Spain is finally about to ask for a bail-out and hence trigger the European Central Bank’s new bond-buying programme, giving Spanish bond yields another nudge downwards and no doubt contributing to the success of …
Calls for independence from the richest regions of Spain, Belgium and Italy threaten to blow big holes in the public finances of the three economies. And more fundamentally, growing public aversion to transfers within countries highlights the difficulties …
18th October 2012
A Spanish bail-out and subsequent ECB bond purchases may reinforce the perception that policymakers will provide similar support to Italy to keep its bond yields down too. But lower bond yields will not solve all of Italy’s problems. … What would a …
The fall in government bond yields after the ECB announced its new bond-buying programme has prompted suggestions that the plan may not actually need to be activated. But it is only a matter of time before President Draghi will have to put his money where …
17th October 2012
Expectations of stronger policy support from the European Central Bank have prompted a period of relative calm in the euro-zone. But previous lulls have not lasted for very long. There are still few signs of any improvement in the peripheral economies’ …
16th October 2012
October’s rise in the German ZEW index suggests that the prospect of ECB bond purchases has continued to ease investors’ fears for the economy. And August’s trade data suggest that the euro-zone as a whole might avoid a recession in Q3. … German ZEW …
On the face of it, Portugal’s Budget for 2013 will enable it to meet the deficit targets set by the Troika and receive the rest of its bail-out funds. But public resistance to austerity and/or a sharp economic downturn could yet mean that the deficit …
Greek industry has recently staged a bit of a revival, but we doubt that the upturn will be sustained. And even if it is, the wider economy may remain in recession. … Is Greek industry really …
15th October 2012
The IMF’s analysis suggesting that “fiscal multipliers” are rather bigger than many governments have been assuming does not tell us much that we did not already know about the euro-zone. It’s pretty clear that austerity has severely damaged growth in the …
August’s rise in euro-zone industrial production suggests that GDP is unlikely to have contracted as sharply as the more downbeat business surveys suggest in Q3 … Euro-zone Industrial Production …
12th October 2012
Spain’s delay in applying for a bail-out and hence triggering the ECB’s new bond buying plan probably reflects both political and financial considerations. But it can’t hold out for much longer. … Why is Spain still dragging its …
11th October 2012
August’s German industrial production and trade figures suggest that, unlike most of the rest of the euro-zone, the economy is probably avoiding a recession for now. … German Industrial Production & Trade …
8th October 2012
The view of some commentators that a return to the drachma would be of little benefit to Greece because “it does not export much” is wide of the mark. Not only would an exit and devaluation improve Greece’s competitiveness, allowing it to export more, but …
Successful bond auctions by the Spanish and Portuguese Governments last week, coupled with signs that other markets may also be starting to function more normally, provided further glimmers of hope that the ECB’s bond purchase programme is having a …
President Draghi reiterated the ECB’s determination to preserve the single currency at today’s interest rate press conference, but there remains a large amount of uncertainty surrounding how the Official Monetary Transactions (OMT) programme will operate. …
4th October 2012
The unveiling of the ECB’s new bond purchase programme may have provided markets with a lift, but further declines in business and consumer sentiment suggest that the overall eurozone economic outlook has worsened. The sharp fall in the EC Economic …
3rd October 2012
By announcing fiscal measures to generate the €13.5bn of savings demanded by the Troika, the Greek Government has moved a step closer to gaining the next loan instalment from its bail-out package. But this alone will not be enough to secure Greece’s …
1st October 2012
The rise in euro-zone unemployment in August, coupled with the still low level of the manufacturing PMI, adds to the evidence that the region is in a deepening and broadening recession. … Euro-zone Unemployment (Aug.) & Manufacturing PMI …
Developments in the euro-zone last week brought the implementation of more decisive policy action to tackle the region’s debt crisis an important step closer. Most notably, the Spanish budget included structural reforms which, it is hoped, will go a long …
September’s rise in euro-zone CPI inflation will not help to ease the pressure on households. Nonetheless, the increase is unlikely to mark the start of a sustained upward trend. … Euro-zone Flash CPI …
28th September 2012
Having been lauded as being “as mighty as the Fed” after unleashing a policy “bazooka” in the form of the Outright Monetary Transactions (OMT) programme in September, the ECB is unlikely to announce more major policy measures after October’s Governing …
27th September 2012
The latest monetary data provide no encouragement about the outlook for the eurozone. Lending to the private sector has continued to fall and the boost to banks’ lending to governments generated by the ECB’s earlier LTROs has faded. … Euro-zone Monetary …
September’s European Commission business and consumer survey served as another warning that the euro-zone economy is sinking into a deep recession and underlined the need for broader policy support from the ECB. … Euro-zone EC Survey …
The unveiling of the 2013 budget and the publication of the audit of the banking system later this week could potentially boost sentiment towards Spain and pave the way for a bail-out deal to be agreed. But Spain will still be left with a number of other …
26th September 2012
Further signs of fiscal slippage suggest that peripheral euro-zone governments will fall short of their ambitious budget deficit targets for this year. … Euro-zone Fiscal Monitor …
The experience of economies which have undergone major currency depreciations in the past suggests that a return to the drachma would kick start a Greek economic recovery. Provided that Greece adopted a credible economic plan after any exit, the …
25th September 2012
September’s fall in the German Ifo business survey is a reminder that even the euro-zone’s strongest economies are suffering from a severe economic downturn. … German Ifo Survey (Sep. …
24th September 2012
So far at least, the Spanish Government’s decision to delay seeking a bail-out does not seem to have backfired. After all, Spanish government bond yields remain low by recent standards. But the Government would be unwise to wait too much longer. After …
The fall in the flash euro-zone composite purchasing managers’ index (PMI) in September is another reminder that the ECB’s new asset purchase programme is not an answer to all of the region’s problems. … Euro-zone Flash PMIs (Sep. …
20th September 2012
September’s rise in ZEW investor sentiment was broadly encouraging, but the index remains consistent with a sharp deterioration in German economic activity. We still see GDP falling by about 1.0% next year after a small rise in 2012. … German ZEW Survey …
18th September 2012
With the launch of QE3, the Federal Reserve has clearly trumped the ECB’s conditional pledge to make sterilised bond purchases. Similar action is warranted in the euro-zone and technically feasible. But the inflation fears of the Bundesbank, in …
17th September 2012
