Recovery defies fiscal crisis… for now

The euro-zone’s fiscal crisis has clearly intensified, with Greek bond yields remaining extremely high despite the agreed bailout and concerns spreading to other peripheral economies. But the recovery in the broader economy seems to have carried on regardless. The business surveys suggest that activity expanded by something like 0.5% in Q1 and that the recovery gained momentum in the second quarter. Even consumer confidence renewed its earlier upward trend in April. The big risk now, though, is that the recovery will fade as the fiscal squeeze tightens and widens.