ECB fears 'abrupt reversal' for global assets on Fed tightening

ECB fears 'abrupt reversal' for global assets on Fed tightening

Press quote (The Telegraph)
Simon Tilford
28 May 2015

"Many eurozone governments could face the prospect of further deep recessions despite having barely recovered, amid persistently strong support for populist parties. The politics of this is likely to be combustible. The euro is not out of the woods," said Simon Tilford of the CER.

Simon Tilford, from the CER said the latest cyclical recovery in the eurozone is too weak to undo the damage caused by the crisis and is unlikely to be enough to restore debt sustainability before the next recession hits. Nor has the currency bloc sorted out its essential deformities or embraced any form of fiscal union. "As it stands, the eurozone is a mechanism for divergence among its members, not convergence: real interest rates are highest in the weakest countries, lowest in the strongest," he said.

He warned that the region will probably go into the next downturn with rates still at zero – and therefore with no powder left – along with contractionary fiscal rules, and with unemployment already corrosively high.

"Many eurozone governments could face the prospect of further deep recessions despite having barely recovered, amid persistently strong support for populist parties. The politics of this is likely to be combustible. The euro is not out of the woods," he said.