Better-than-expected headline growth for the eurozone is a nice Valentine’s gift. But don’t assume everything is coming up roses.
Unemployment in Greece and Spain is still excruciatingly high. The current account deficits of the bailed-out nations have fallen, but this is mainly due to lay-offs and weak consumption rather than an improvement in competitiveness relative to Germany. A great deal of painful internal adjustment still lies ahead. And low eurozone inflation will not help that. Suspicions also lurk of large capital holes in the Continent’s banks, choking the flow of credit to firms. The European Central Bank’s new stress tests are supposed to address that, but similar exercises ducked the recapitalisation challenge. Political risk has not gone away either, as this week’s power struggle in Italy demonstrates. The European Court of Justice must also rule on the legality of Mario Draghi’s “big bazooka” monetary promise.
The crisis is far from over.
