5. Deficit reprofiling in Europe

EU Euro Sign Famous 480

“Governments in Europe are seeking to re-profile their deficits. France is likely to be granted a one year extension to meet its deficit reduction target, with Spain and Portugal expected to be granted two additional years to meet their targets. Likewise, Ireland is expected to renegotiate its promissory note. This lessens, but does not eliminate the paradox of thrift, and means that European growth is likely to be less than zero but only marginally so. Sentiment should improve over the next few months; however improved sentiment is likely to be accompanied by an appreciation of the euro against the yen and US dollar. This will reduce the external competitiveness of the region and dampen hopes of positive regional growth in the second half of the year.”

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