European Economic Highlights — Cyprus Crisis Averted

Filed under: International,News,The Economy |

From The Conference Board– The deal about the bailout for Cyprus that was reached last night seems to be encouraging for recovering short-term financial stability in the Euro Area and a continuation of the Cypriot membership of the euro.

Cyprus has been a member state of the European Union since 2004.

Cyprus has been a member state of the European Union since 2004.

The improvements in the stock markets this morning are a sign of some recovery in confidence and it seems that with this deal a major calamity to the Euro Area has again been avoided.

While stock markets were down last week and volatility in the stock market increased somewhat, overall there has been relatively little change in key measures of financial instability.

For example, the 10-year government bond yields for Spain and Italy have barely moved and are under 5%.

Still, the situation in Cyprus is once again showing the vulnerability of the Euro Area and its financial system, and the great difficulty of the current political and institutional constellation of the Euro Area and the European Union to tackle those types of immediate incidents, of which more may emerge during the next year or so, head-on.

While confidence in the future of the Euro Area has improved since last summer, and Europe has again shown to be able to muddle through the financial crisis, the path towards a new and more stable fiscal and monetary setting that provides a better foundation to growth is still very fragile.

Last week many confidence indicators for March were released. German businesses rated the business climate a little less optimistically as the indicator declined marginally, which came after four months of solid increases.

Consumer confidence in the Euro Area as a whole remained unchanged at a historically low reading after increases earlier in the year. The PMIs also provided no reason for continued optimism in March.

The composite output index for the Euro Area declined from 47.9 to 46.5, according to Markit, which is well below the neutral reading of 50.

This means that the cautious recovery in confidence that the Euro Area has seen during the past months is currently stagnating, which is not a good sign for the months ahead.

The current turmoil in Cyprus could be another concern on people’s minds moving forward, therefore hampering the recovery at hand.

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