Eurozone embers flare up again
Portugal is likely to need a second rescue package from the EU and IMF, and Greece isn’t looking too good either, and France urgently needs reform.
The eurozone crisis is back, says Liam Halligan in The Sunday Telegraph. Last week, Portugal's ten-year bond yields jumped by 1.5% in just two days after a worrying (if short-lived) political crisis (two senior ministers quit the government). Yields look unsustainable. With GDP still shrinking, Portugal is likely to need a second rescue package from the EU and International Monetary Fund.
Greece isn't looking too good either, says Roger Bootle of Capital Economics in The Daily Telegraph. It has struggled to secure its latest tranche of funding from the EU and IMF, and the government's thin majority means that it could have difficulty pushing more reform and cutbacks through. Italy's growth forecasts look too optimistic. Spanish banks will be saddled with even more bad loans as the economy deteriorates. Ireland appears to have had "something of a relapse". Stagnant France urgently needs reform.
The overriding impression is that "the electorates of countries in the grip of austerity are close to breaking point", says Bootle. It won't get any easier. Europe's recession continues and the rise in US Treasury yields has boosted yields in Europe too, a further problem for peripheral economies. So more political tension between north and south, and further bail-outs, remain likely. A southern country might also abandon austerity and consider leaving the euro.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The eurozone has made only slow progress towards a banking union. This would prevent banks bankrupting countries in future, because supervision and recapitalisation would occur at the European level. States have agreed to provide up to €60bn from the European rescue fund to recapitalise banks and will force banks to tap creditors before getting public aid.
But banking system losses could exceed €1trn, says Wolfgang Munchau in the Financial Times. These new rules won't kick in until 2018, so will do little to alleviate the crisis that's happening now, says The Wall Street Journal. For the next few months, expect a lot of fudge, says Bootle: leaders will do their best to delay crises until after the German elections in September. But "those who think that the euro crisis is all over are in for a rude awakening".
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?
Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
By Kalpana Fitzpatrick Published
-
What does Rachel Reeves’s plan for growth mean for UK investors?
Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
By Katie Williams Published