The situation in the Euro Area has taken a serious turn for the worse in the past month. The economy has tipped into what we believe to be a recession, which will only serve to widen budget deficits and weaken bank asset quality further. Policy makers are floundering to deal with this situation, amid very challenging economic and political constraints. The rest of the world looks on anxiously. Managing the global fallout from abrupt shrinkage in European bank balance sheets will be critical if an untimely re-tightening in global credit conditions is to be avoided.
Source: Institute of International Finance, Inc
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