Europe may be showing signs of recovering from its economic crisis, but Citi analyst Willem Buiter says it isn’t over yet and won’t be over for another year or so. Buiter notes that there are some “green shoots” or improvements in some areas, but he says there are other problematic conditions hanging over the continent.
Problems In Europe
He cited “tight lending conditions, intense private deleveraging pressures,” poor but improving competitiveness, “continued austerity despite growing austerity fatigue and a lack of policy consensus to resolve the crisis.” Buiter believes that the Eurozone will continue to be in the midst of a financial crisis until the middle of next year and that the continent’s recovery will be slow.
He sees banking union as being the most important initiative underway in Europe right now. Before Europe’s Central Bank officially becomes the only supervisor of Europe’s biggest banks, he expects it to be the “driving force” behind stepping up scrutiny of the banks’ balance sheets by the middle of next year.
Buiter notes that arrangements for Europe’s banks to recover are being developed gradually and believes that there will continue to be financial fragmentation in the Eurozone for the near future. In fact, he expects that fragmentation to increase as time goes on.
He believes Europe will continue to see fiscal integration be limited because no one seems to want it. Eurobonds don’t appear to interest anyone. Also he sees economic weakness, fiscal deficits and austerity fatigues turning into debt service fatigue. Buiter also believes that Cyprus, Greece, Spain, Portugal, Italy, Ireland and possibly Slovenia will probably see “some form of sovereign debt restructuring.”
Isn’t Europe ‘All Better’?
MarketWatch contributor Sara Sjolin of The Tell notes that Citi’s analysis comes out in stark opposition to the viewpoint of French Prime Minister Francois Hollande. Hollande said the crisis was over just days ago, but Buiter believes that small improvements and public confidence in new policies have spurred optimism in the Eurozone. He simply says it’s too early.