We know, we know… everyone is tired to hear about the european mess, but somehow we find ourselves obliged to inform our readers about the latest developments… hence, here we post Deutsche Bank’s latest report on Europe, with their forecasts by country and euro area GDP downgrade to -0.5% in 2012. 

Find the summary and full report below…


– The failure of the EU authorities to find a solution to the sovereign debt crisis means the downside risks are materializing. We are cutting our 2012 euro area GDP growth forecast from +0.4% to – 0.5%.
– The steady ratcheting up of fiscal austerity in the larger member states, deteriorating bank credit supply in a bank credit-dependent economic system and rapidly deteriorating confidence all point to a deepening contraction in economic activity in the next few quarters.

– The good news is that the worse the economic outlook becomes, the more likely the ECB will take more aggressive steps to deal with a compromised monetary transmission mechanism and the growing downside risks to price stability, its primary mandate. Larger bond market intervention on these terms will leave the spirit of Article 123 intact.

– In combination with ‘Treaty change’ as well as credible national fiscal and economic adjustment plans, larger ECB bond market intervention will build a funding bridge until markets price out the dual existential risks of PSI and euro break-up. It will take time to restore confidence.

– If the EU ‘Treaty change’ ambition fails to materialize, the ECB may still be forced by circumstance into larger market intervention. But without the compensating moves on the political front, markets will fear this as politically unsustainable.

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