Eurozone Weekly Economic Briefing: 21 Oct 2011

Since the onset of the financial crisis in 2007, credit conditions in the Eurozone have been steadily deteriorating, and the bank lending survey for 2011Q4 reports that credit conditions have tightened further. Banks' difficulties in accessing funds from financial markets have been a significant factor behind the latest tightening of credit conditions and the latest surveys for individual countries reveal that credit standards are now being tightened across all countries in the Eurozone. With loans being the main source of external finance for companies, this will have an adverse impact on business investment and on the Eurozone economy as a whole. Though the credit conditions surveys for the UK have been reporting a moderate loosening, this is from a very low base and the UK essentially faces a similar predicament. Indeed, in an attempt to pre-empt a liquidity freeze that would be triggered by a Greek default, the Bank of England announced an additional dose of quantitative easing in October. Eurozone leaders are yet to arrive at a solution and will meet at the weekend to agree on a way forward. With investors anxiously awaiting the outcome of this summit, the European authorities are under immense pressure to deliver a credible and comprehensive plan.