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EMU: Growth now, stability later...
Thu, Nov 20 2008, 10:42 GMT
by Yapi Kredi Bank Economic Research Department
UniCredit Group
● The dramatic worsening of the growth outlook throughout the eurozone has strengthened the call for fiscal stimulus, particularly suited to support activity at a time in which monetary policy risks being less effective than usual.
● Next year, budget deficits in the area’s largest economies will increase significantly, due to the effect of both automatic stabilizers and discretionary fiscal measures. A generalized breach of Maastricht criteria is in the cards, but we don’t see this as a negative factor.
● Under the current exceptional circumstances, avoiding a major economic slump is certainly the main priority. What truly matters is that individual countries adopt a cooperative rather than opportunistic behavior not only when passing looser policies, but also when things will start to improve.
● Higher budget deficits will have a major impact on bond issuance in 2009. In a best-case scenario, we expect gross supply in the eurozone to amount to EUR 818bn, posting a EUR 179bn increase vs. 2008. In a worst-case scenario, bond issuance would surpass a record amount of EUR 1tn, more than a 50% increase vs. 2008
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Thu, Nov 20 2008, 10:46 GMT
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