- Before delving into our own views first an interesting analogy we heard describing the economic situation we are in: It’s like seeing a ray of light in a dark tunnel but not knowing whether this is the light at the other end of the tunnel — or that of an approaching train. The basic message being that the crisis atmosphere has relaxed but the problems are far from over.
- The good news is that over the last quarter spreads in Spain and Italy have declined and that the budget deficits in Europe are also declining. The bad news is that the budgetary austerity measures are taking their toll on growth and unemployment and that there is still no blueprint for how the problems will be dealt with.
- The resolution of Cyprus where multiple parties had to pay a price looks like a text book solution with bank equity and bond holders being wiped out, insured depositors being fully protected and uninsured depositors getting a haircut. It wasn’t however a completely clean solution as there were exceptions for favoured groups from the bail in, which means others (the taxpayer, the rest of the Eurozone) will be left to foot the bill.
- The Cyprus crisis however also reaffirmed the fact that the Eurozone has not been given up for dead and that countries are ready to step in and that the euro should maybe not be written off yet. …
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