FXstreet.com (Barcelona) - Merrill Lynch observed that the European crisis has mutated over the last three years, from a “periphery” phase in April 2010-June 2011 to ebbing confidence in Spain and Italy’s ability to maintain market access plus doubts about ECB willingness to act as lender of last resort. “Since then, the LTROs and more recently the announcement of Outright Monetary Transactions (OMT) have pushed stress levels back down”, wrote analyst Gustavo Reis. pointing that depressed confidence, fiscal tightening, muted global growth and still impaired credit markets all point to persisting recession despite the ECB readiness that shrunk bond yields and partially revived financial flows.

The GDP figures that arrived yesterday point to economic contraction again in Q3 and Merrill Lynch analysts, with a little help from ECB’s Area-wide leading indicator (ALI), expect more to come: “The ALI points to continued contraction in 4Q but followed by stabilization at the end of the first quarter. This is in line with our forecast, which envisages stagnation during 2Q 2013”, added Reis.