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Last week’s rise in German bund yields might have reflected expectations that Germany has finally accepted the need to shoulder more of the peripheral economies’ fiscal risk. After all, German Chancellor Angela Merkel has pushed for a general move towards …
28th November 2011
November’s slightly stronger Ifo survey will do little to ease the growing concerns over the outlook for Germany in the wake of yesterday’s unsuccessful bund auction. … German Ifo Survey & GDP Breakdown …
24th November 2011
November’s flash PMI surveys provided further support for our view that the damaging effects of the euro-zone’s ongoing debt crisis are likely to push the region’s economy back into a deep and protracted recession. … Euro-zone Flash PMIs …
23rd November 2011
Jointly issued euro-zone bonds might represent the move into full-blown fiscal union that could be needed to preserve the single currency area in the long run. But opposition from Germany suggests that, at best, such a move is a long way off. And even if …
22nd November 2011
There are still few signs that euro-zone policymakers are close to placing a firewall around the region’s most troubled economies. This, combined with the deteriorating economic outlook, led some of the core economies’ government bond yields to continue …
21st November 2011
Financial markets seem finally to have started to accept that the euro-zone might actually break up. Regular readers will not be surprised to hear that we think this process has considerably further to go. … Are markets starting to price in a euro …
16th November 2011
Although Spain is in a rather better position than its Southern European counterparts, the next Government still faces huge challenges and is unlikely to overcome them without outside help. … Will the new Spanish Government steady the …
Growing concerns about France threaten to take the euro-zone crisis to a new level. If a further rise in bond yields or large bank losses leave France unable to support the periphery, the burden on Germany and the few remaining “core” economies might …
The euro-zone’s modest expansion in Q3 could be the last for some time. With more timely indicators already very weak and the debt crisis set to deepen, the risks of another very sharp recession in the region are growing rapidly. … Euro-zone GDP (Q3) & …
15th November 2011
The idea that the European Central Bank (ECB) will fire a “silver bullet” into the euro-zone crisis by printing vast amounts of money to prop up the Italian bond market looks optimistic. Not only is the ECB itself vehemently opposed to the idea, but it …
14th November 2011
The departure of Silvio Berlusconi may have prompted hopes that Italy has come back from the brink, but we still think that a new government is unlikely to prevent an eventual default. … Italy needs more than a new …
September’s plunge in euro-zone industrial production provided the strongest sign yet that the sector is beginning to act as a major drag on the economy. Given this, the problems of the region’s most fiscally challenged economies look set to grow. … …
We have long warned that Italy represents the single biggest threat to the currency union and last week, that threat loomed large. Bond yields rose to unsustainably high levels, suggesting that Italy will probably need to undertake some type of default. …
With Italian bond yields rocketing and European governments struggling to agree on a plan to raise finance, some have pinned their hopes on the ECB as possible lender of the last resort. While the Bank will continue to intervene in bond markets to try to …
9th November 2011
Recent developments in Italy, coupled with its deteriorating growth prospects and huge structural economic problems, support our view that the Italian government will eventually default. The huge financial and economic consequences could in turn trigger …
The latest data have revealed that the economic downturn is deepening and spreading. October’s drop in the euro-zone composite PMI left it pointing to sharp quarterly falls in GDP of around 1.0%, suggesting that new ECB President Mario Draghi’s warnings …
8th November 2011
September’s falls in German industrial production and euro-zone retail sales confirm that an underlying economic downturn is accompanying the region’s debt crisis. … German Industrial Production & EZ Retail Sales …
7th November 2011
Greek Prime Minister George Papandreou’s extraordinary manoeuvrings last week forced euro-zone leaders to acknowledge openly for the first time that a country could leave the euro-zone. Indeed, preparations are reportedly being made for such a …
The ECB’s decision to cut interest rates by 25 basis points to 1.25% suggests that it is starting to acknowledge the effects of the region’s debt crisis on the wider economy. But, for now at least, the Bank seems unwilling to take bolder steps to prevent …
3rd November 2011
However the Greek referendum episode is ultimately concluded, the fact that euro-zone leaders have for the first time openly acknowledged that a country can leave the single currency is a potentially seismic development in the evolution of the debt …
The chances of Greece holding a referendum appear to be diminishing and a general election seems likely before long, even if the Government wins Friday’s confidence vote. But whatever the precise course of events, we still think that Greece is likely to …
The euro-zone debt crisis is having a severely damaging impact on the European macro-economy. Not only are the troubled peripheral economies set to remain deep in recession, but growth prospects have weakened markedly both in the euro-zone’s core and in …
The Greek government’s surprise decision to hold a referendum on the latest euro-zone rescue package has clearly increased the risks of a bigger and disorderly default on Greek debt and, ultimately, of Greece leaving the euro. Perhaps more importantly, …
1st November 2011
Further signs that some of the region’s most troubled economies are struggling to meet their budget deficit goals, coupled with growing evidence that the euro-zone is entering a new recession, underline the fact that the latest euro-zone deal will not be …
31st October 2011
The latest euro-zone inflation and unemployment data might leave the hawks at the ECB still concerned about underlying price pressures. … Euro-zone Flash CPI & Unemployment …
The plans agreed at last week’s EU summit look like another example of policymakers sprinting to catch up with events, but failing to get decisively ahead. We are not suggesting that the positive market response will unravel in a matter of days, as it did …
Despite yet another round of speculation suggesting that China is about to ride to the rescue of the euro-zone, Europe will still have to solve its own problems. Meaningful Chinese support would probably require additional concessions that European …
29th October 2011
While the news on the euro-zone economy points strongly to the need for more policy support, there have been few hints that the ECB is intending to cut interest rates at its November meeting. However, new President Mario Draghi is likely both to signal a …
28th October 2011
The latest monetary data suggest that stresses in the banking sector are growing. With the new bank recapitalisation plans unlikely to restore stability to the banking sector, we expect credit conditions to continue to tighten. … Euro-zone Monetary …
October’s fall in the EC measure of business and consumer sentiment adds to the evidence that the recovery is well and truly over and that the region is suffering from far more than a fiscal crisis. … Euro-zone EC Survey …
The plans announced by euro-zone policymakers overnight look more like a peashooter than the “bazooka” previously promised to tackle the region’s problems. We have not altered our view that the crisis will deepen over the coming quarters, ultimately …
The immediate fall-out from a Greek default should be manageable and much less damaging than that which followed the collapse of Lehmans, even if it does count as a “credit event”. However, this assumes that policy-makers are able to prevent contagion to …
26th October 2011
The steep fall in the euro-zone composite PMI further below the theoretical 50 “no-change” barrier supports our view that the consensus outlook for GDP growth in the region is far too optimistic. … Euro-zone Flash PMIs …
25th October 2011
Aware of what is at stake and under the watchful glare of the world, euro-zone policymakers might finally put their differences aside and produce the goods at the forthcoming EC council meetings and G20 summit. But past experience does not bode well. And …
On the face of it, October’s modest decline in the headline Ifo index suggests that the German economy is still holding up reasonably well, but we continue to think that the index is understating the pace of the slowdown. … German Ifo Survey …
22nd October 2011
Policymakers’ latest plans to tackle the euro-zone debt crisis are unlikely to address the region’s fundamental problems and secure the future of the single currency. We still doubt that the euro will survive the crisis in its current form. … Can the euro …
19th October 2011
Signs that European policymakers may finalise a “comprehensive response” to the euro-zone debt crisis at the European Council meeting on 23rd October prompted the euro to climb sharply against the dollar last week and equity markets to rally. But we think …
18th October 2011
The final euro-zone CPI data for September confirmed that both headline and core inflation rose sharply. But given the recent dramatic deterioration in the growth outlook, we still expect the ECB to cut interest rates by the end of the year. … Euro-zone …
15th October 2011
August’s rise in euro-zone industrial production suggests that, for now at least, the sector is continuing to prop up the wider recovery. But this is unlikely to last. … Euro-zone Industrial Production …
13th October 2011
The dollar’s recovery against the euro may have paused but the outlook for the European single currency remains poor. The relative prospects for monetary policy and the risks of a renewed escalation of the financial crisis in the euro-zone should both …
12th October 2011
The ECB took some fairly bold steps to improve commercial banks’ liquidity last week. But given the growing likelihood of default by some euro-zone governments, fears about banks’ solvency have surged, prompting calls for capital injections of up to …
11th October 2011
August’s fall in German industrial production supports other evidence that the recovery in what was previously the strongest sector of the euro-zone’s strongest economy has gone into reverse. … German Industrial Production …
8th October 2011
The ECB today opted to focus on unconventional rather than conventional monetary policy measures, leaving interest rates on hold but substantially increasing its support for the banking sector. But with the euro-zone teetering on the brink of recession, …
7th October 2011
September’s data revealed a sharp rise in euro-zone HICP inflation from 2.5% to 3.0%, which appears to have been driven by a renewed rise in core price pressures as well as energy inflation. With consumers’ inflation expectations remaining high in …
New fiscal measures announced by the Greek Government may have reduced the risks of an imminent disorderly default. But policymakers still face a battle to agree a deal to cover Greece’s financing needs for the next few years, implying that a near-term …
5th October 2011
On the face of it, developments last week might have suggested that policymakers are inching closer to resolving the euro-zone crisis. However, the most radical suggestions have come from outside the euro-zone and not within it. Steps that have been taken …
4th October 2011
On the face of it, the latest euro-zone CPI inflation and unemployment numbers would appear to reduce the chance of an imminent ECB rate cut. But with the economy on the cusp of recession and the debt crisis still escalating, we still think that the Bank …
1st October 2011
Italy’s recent austerity measures and ECB purchases of government bonds have brought Italy back from the brink. But we still think that Italy may eventually default, with huge repercussions for the euro-zone economy and financial markets. … Is Italy close …
30th September 2011
At the press conference following his final meeting as ECB President, Jean-Claude Trichet will strike a more downbeat tone, suggesting that interest rate cuts are not far off. We are still pencilling in cuts in December and March, but they might easily …
Recent news shows that many of the euro-zone’s fiscally-challenged economies are broadly on track to meet their 2011 budget deficit goals. Nonetheless, we continue to think that several of the region’s most indebted economies may eventually end up …
