Fiscal tightening starts to bite (Q4 2010)

The European economy has recently performed relatively well despite continued fears about public debt in parts of the region. But as global demand slows, the export recovery will falter, with the euro-zone particularly at risk from the strength of the single currency. Meanwhile, fiscal tightening has already begun to hit the peripheral euro-zone economies and will soon spread to the core. And with the ECB so far reluctant to participate in either a global currency war or the second round of quantitative easing due to begin elsewhere, the euro-zone risks sliding back into recession. This, together with ongoing market concerns, will keep fears of a break-up alive.