Tail risks keep Europe in the doldrums: ECR Q3 2013
Other European scores have fallen as the political and economic problems across the region mutate. During the year to date, most parts of Europe – including the eurozone, the high-risk former Soviet Republics (the CIS), led by Moldova, Kazakhstan and Ukraine, and other central and eastern parts of the region, several with governance issues – have witnessed the largest average score declines of any regions of the world.
In the European Union, 17 of its now 28 member states are riskier, whether compared with June or since the end of last year; Croatia, a member since July 1, has merely added to a list of riskier nations – one of several with score declines of more than half a point during Q3, among them Cyprus, Estonia and Slovakia.
Remarkably, in spite of the recoveries witnessed in some of the bailout countries, notably Ireland and Portugal, the eurozone crisis is continuing to cause ripples, with no fewer than 10 of the 17 member states still succumbing to lower scores during Q3. This comes amid weak economies, excessively high unemployment rates, spikes in political risk, trade-weighted appreciation of the euro, and Greek borrowing concerns re-emerging to keep the region’s worst performer grounded on 34 points.
The continuing effort to sort out the fiscal disarray, exaggerated by consuming large banking-sector liabilities, has been hampered by political resistance and the elusive economic rebound to keep eurozone risks elevated.
The majority if not all of the survey’s six economic risk indicators – ranging from bank stability to government finances – have been downgraded this year for most of the eurozone periphery, contradicting the recent revival in confidence and activity levels across the region, which remains uneven and modest.
Constantin Gurdgiev, another ECR contributor, based in Dublin, says: “The changes in risk assessments broadly reflect improved sentiment across the euro area, consistent with both improved global growth outlook and internal regional stabilization in the wake of protracted sovereign debt and growth crises.
“[However] structural weaknesses and risks remain, with France presenting significant long-term risk due to the complete absence of serious efforts to reform the labour markets and address a chronic lack of investment in new enterprises formation.
“The US debt-ceiling uncertainty also presents a lower risk to the euro area economies than the longer-term upward pressure on US yields. As benchmark yields for the US and Germany deteriorate into 2014, there will be renewed pressure on funding excessive debt levels across the majority of the euro area economies, most notably for Greece, Italy, Portugal, Spain and Ireland, but also for Belgium and the Netherlands.”
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