The Eurozone crisis resurfaces
The renewed rise in Spanish and Italian bond yields has provided a stark reminder to investors that the Eurozone’s sovereign crisis remains largely unresolved. The recovery in investor confidence, which had pushed markets sharply higher in the first quarter, was tested in mid-April as 10-year Spanish government bond yields rose above 6 per cent. Italian bonds followed a similar path as investors digested the challenges that fiscal austerity poses to economic recovery.
In the US, the stock market’s recovery from the lows of October 2011 continues amid a steady improvement in the economy. Economic activity indicators have turned positive, business and consumer confidence readings are rebounding and the employment market has improved significantly, with the unemployment rate falling to a three-year low of 8.3 per cent in February. Even the housing sector, for so long a brake on consumer confidence and spending, is now showing signs of a sustainable upturn.
Evidence is growing that voters are increasingly rejecting austerity as the sole solution to the Eurozone’s financial problems. Centre-left candidate François Hollande won most votes in the first round of the French presidential elections by campaigning against what he called incumbent Nicolas Sarkozy’s ‘excessive’ austerity. This was followed by the surprise collapse of the Dutch coalition government after the anti-EU Freedom Party refused to support €9.5 billion of spending cuts to meet the 3 per cent deficit target for 2013 required under the new Eurozone fiscal pact. (...)
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