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Sunday 26.01.2020 | Name days: Agneta, Agnis, Ansis

SEB: eurozone crisis far from being over

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Eurozone crisis is deteriorating and there is systematic risk in the single currency block, following many troubled countries’ sovereign debt ratings slashed recently, SEB experts say.

Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RUFinance markets report soaring concern over Italy and Spain’s economic conditions. Even if the situation grows worse in these countries, it will intervene with the whole eurozone crisis prevention strategy. The current financial aid programmes can save some relatively smaller eurozone countries, yet if its third (Italy) and fourth (Spain) biggest economies start shaking, measures of a much larger scale will be necessary, experts stress.

At the same time, they acknowledge Italy is in a better position than the weakest links of the eurozone as its budget deficit can be controlled, moreover, most of its sovereign debt is in the hands of home-based investors. However, a huge issue of Italy is that its economy has hardly expanded in the recent quarters, thus the situation can deteriorate at a fast pace.

SEB forecasts eurozone will sort out its soaring issues but Greece will have to restructure its government debt in 2012 for sure. Additional requirements to restore budget discipline will hit the residents of Greece and businesses the most. Greek banks and pension funds will also suffer, because they have invested in Greece bonds. Moreover, also the European Central Bank has purchased a lot of them.

Apart from Greece, Portugal is most likely to restructure its debt as well. According to SEB, it will take place some time in 2012. Similarly to Greece, the country is also struggling with structural problems, poor productivity and competitiveness. In addition, Portugal’s economy is highly disbalanced and its financial sector is in huge liabilities.

European Union crisis will not hamper the global economic recovery which can be ongoing for the next a couple of years. Moreover, the pace of the recovery could even gain in power in the third quarter of 2011, mostly boosted by economic improvements in the U.S and Japan.

Troubled eurozone countries face more and more challenges in attracting funds and Ireland, Portugal and Italy bond yield rates surged rapidly last week.


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