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Although the Greek ‘second’ election results averted a direct confrontation on the austerity measures with the other eurozone countries, the focus of the euro crisis has now moved to the larger southern European countries.
The Spanish government’s rescue of Bankia has been followed by a request for up to EUR100bn of fund monies to recapitalise the broader Spanish banking system. Agreed terms appear unclear but do include increased austerity requirements. The bond markets have responded to these events by raising the 10-year benchmark bond yield to around 7% and, in Italy, to 6%.
Economic output, as measured by GDP, hardly changed over the first quarter of 2012: -0.1% in the eurozone and +0.1% in the EU27. While that was a significant improvement on the Q4 2011 declines of 0.3% in both the EU27 and the eurozone, it is unlikely to be signifying a return to growth in the next quarter or two. This represents a shift from the perspective of only a few months ago that the ‘double dip’ in Europe was substantially over.