Euro-Area Leaders Need to Focus on More Pressing Issues

A surprising amount of common ground was reached at last week’s informal meeting of European Union leaders—but  there wasn’t agreement on joint issuance of Eurobonds.

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What Will Happen if Greece Leaves the Euro Area?

With party leaders failing to set aside their differences, Greece is set to hold another general election on June 17. The outcome is hard to predict, but one thing is clear: a Greek exit from the euro area is now a possibility that investors need to take very seriously. 

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Spanish Jitters Reveal Euro’s Fragility

Yields on 10-year Spanish government bonds have risen by 100 basis points since the beginning of March.  With attention now switching back to Spain, it seems the brief hope provided by the European Central Bank’s massive liquidity injections has proved to be a false dawn. Why has confidence evaporated so quickly?

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Could German Inflation Help the Euro Area to Rebalance?

Euro-area data have surprised on the upside in the opening weeks of 2012. This is particularly true in Germany, where there has been a strong bounce in key cyclical indicators and genuine signs of expansion. But could Germany be getting too much of a good thing?

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Latest Deal Postpones Greece’s Day of Reckoning

The second rescue package for Greece that was agreed upon yesterday by euro-area finance ministers should reduce the probability of a near-term Greek bankruptcy and possible euro exit. But substantial implementation risks remain and the latest analysis by the country’s own lenders suggests that more needs to be done in the medium term.

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Private Sector Involvement Is Unlikely in Second Portuguese Bailout

With 10-year Portuguese bond yields above 14% (see Display), the market is suggesting that Portugal will soon need another bailout from its euro-area partners. While we share the market’s skepticism about the sustainability of Portugal’s public sector finances, we doubt that policymakers at this stage will seek to impose losses on private sector creditors, as [...]

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Euro-Area Governments Should Heed S&P’s Warnings

Market reaction to S&P’s decision to downgrade several euro-area countries last week has been rather muted, probably because the move was not really a surprise. Still, I think euro-area governments should pay close attention to the rating agency’s reasoning.

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Europe’s Fiscal Compact: A Very Modest Step Forward

The fiscal compact that the leaders of most European Union countries agreed on last week to bring some order to the euro area was broadly in line with expectations. While it may eventually be seen as a first step towards true fiscal union, it is more like a pistol than the long-awaited big bazooka.

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Is the Euro Zone at the Beginning of the End of Muddling Through?

This week’s series of high-level meetings in Europe is being billed as make or break for the euro. The good news is that European politicians finally seem to realize the extreme seriousness of the current situation. But any agreement at this Friday’s summit of all 27 euro-area countries is likely to stop short of anything [...]

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Where’s the Euro’s Lender of Last Resort?

Spain was back in the spotlight today, as rising bond yields suggested that investors remain unimpressed by the victory of the Popular Party in Sunday’s election. But the stress is spreading well beyond the euro area’s so-called periphery.

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