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During the recent round of financial crises, policymakers have done a whole lot of “kicking the can down the road”.
Reporting by Chris Kaufmann and Walden Siew
For all the enthusiasm about the euro zone’s exit from recession, many experts believe the currency union’s crisis is more dormant than over. That was certainly the message from Austan Goolsbee, former economic adviser to President Barack Obama and professor at the University of Chicago. He spoke to the Reuters Global Markets Forum this week.
Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with tradition. But, as in the Fed’s case, the increased transparency seems to have only made investors more confused.
Surprise! Euro zone unemployment was stuck at record high of 12.2 percent in May, with the number of jobless quickly climbing towards 20 million. Still, as accustomed to grim job market headlines from Europe as the world has become, it is worth perusing through the Eurostat release for some of the nuances in the figures.
Let’s face it: “Gerxit” doesn’t roll of the tongue nearly as smoothly as a “Grexit” did. While Europe continues to struggle economically, fears of a euro zone break-up have receded rapidly following bailouts of Greece and Cyprus linked to their troubled banking sectors.
Spanish government bonds have had a good run since the European Central Bank said it would protect the euro last year. But some analysts say the threat of a rating downgrade to junk remains an important risk.
Local currency bonds in emerging markets, like most financial assets, have enjoyed a solid rally on the back of ample global central bank liquidity. But the good times may be coming to an end, according to a report from Capital Economics. That’s because there’s only so much boost the securities can get out of the monetary easing efforts of the Federal Reserve and other major central banks, the firm says.
Evidence that Europe’s austerity policies are not working was in ample supply this morning. The euro zone as a whole is now in its longest recession since the start of monetary union. France has succumbed to the region’s retrenchment. Italy’s GDP slump is now the lengthiest on record. And Greece, still in depression, shrank another 5.3 percent in the first quarter.