Eu­ro­zone out­look

Financial Mirror (Cyprus) - - FRONT PAGE -

right or to the left. Se­ces­sion­ist fac­tions in Scot­land and Cat­alo­nia have called into ques­tion the in­tegrity of the na­tion state. Mean­while, calls have in­creased for ref­er­en­dums on whether to con­tinue EU mem­ber­ship, as in Bri­tain and Fin­land. This has added sig­nif­i­cant un­cer­tainty to the out­look. If the Eu­ro­zone con­tin­ues to grow in line with expectations of 1.5% this year and 1.6% next year, then in most mem­ber states a sta­bil­i­sa­tion and even­tual de­cline in gov­ern­ment debt to GDP ra­tios is likely.

How­ever, the main risk to the Eu­ro­zone is a growth shock re­sult­ing in even lower growth. As Ex­hibit 6 shows, ap­ply­ing a two times stan­dard de­vi­a­tion growth shock to Spain re­sults in an in­crease in its pub­lic debt to GDP of 9.9%. In the case of Italy, given its higher debt stock, a sim­i­lar shock re­sults in an in­crease in debt to GDP of 23.4%. Al­though th­ese are only sim­u­la­tions, they show the dan­ger that the more highly in­debted coun­tries face in the event of a sharp eco­nomic down­turn.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.