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The price we are paying for serial policy errors

  • In our last briefing before our summer break, our main focus is the disappointing eurozone recovery;
  • Eurostat confirmed that the economy stagnated during Q2; with Germany and Italy down 0.2% qoq, and France stagnating;
  • German 10-year yields dropped below 1% for the first time ever, as investors are now betting serious money against the ECB’s inflation target;
  • the main point of interest in the German press is not the next leg of the recession, but the French budgetary overshoot, which has given rise to an expression of outrage;
  • In Italy, Matteo Renzi was telling reporters: See, it’s not just us, it is a European problem;
  • Renzi also said that he expects “the lady” to soften her stance on deficits at the next European Council;
  • Simon Wren-Lewis explains the eurozone’s latest crisis in terms of household savings rates – they declined in 2012 to counteract the effects of fiscal tightening – which means the domestically-generated recovery has already happened;
  • Paul de Grauwe says policymakers are trying to fix a demand crisis with supply-side reforms, a policy that is now leading to a downward spiral;
  • Ambrose Evans-Pritchard argues that the policy is now too tight even for Germany – and is kept too tight for purely ideological reasons;

Further News

  • Just as Finland comes out of recession, it is threatened by the direct impact of Russian sanctions – with an estimated effect on growth of 0.5pp;