European Economy. Quarterly report on the euro area 2011.

Abstract

Over the summer months, the crisis has reached new levels of seriousness and urgency as dangerous feedback loops between sovereign risks, banking sector health and the wider economy have re-emerged. The weakening of business and consumer confidence in recent months across the euro area should be seen as a cautionary development. Not only does it suggest a weakening of the current business cycle position, but it also places the sovereign debt crisis in a more challenging environment marked by greater risk aversion and uncertainty. Projections from the Commission's latest interim forecasts, published on September 15, show slower growth in the second half of this year than expected at the time of the spring forecasts. Downside risks to growth prospects have increased, primarily due to concerns about the unresolved euro-area crisis and its repercussions on financial markets' health as well as the global economic slowdown.