The eurozone’s crisis deepened this week, as the political and economic costs of fiscal austerity became clearer amid signs that the ECB’s medicine is wearing off fast.
The Bank of Spain estimated the country’s GDP fell by 0.4 per cent in the first quarter, while purchasing managers’ surveys showed that economic activity across the region fell to a five-month low in April, killing hopes that the recession would be short and shallow. Meanwhile, the fall of the Dutch government after a row about Budget cuts and Nicolas Sarkozy’s poor showing in the first round of the French presidential election “highlight popular unease at austerity attempts”, according to Investec’s Ewen Stewart.
… yields on 10-year Spanish government bonds hit 5.9 per cent this week, a full percentage point higher than they were in early March.
“The LTRO party is over. Bond markets are in panic mode” says Marchel Alexandrovich at Jefferies International. “The ECB will have to do something else.” That something, he thinks, could be full-blown quantitative easing.