The latest monthly survey results of the Reuters poll, released yesterday (16 August), follow news that the eurozone just barely skirted recession in the first half of the year, with only Germany growing in the three months to June and France, the second largest eurozone economy, flatlining.
Taken together with a worsening outlook for the eurozone's most vulnerable economies in a Reuters poll published last week, there appears little expectation for an end to the euro crisis or any prospects for a meaningful economic rebound.
Adding to the deeper concerns, Finnish Foreign Minister Erkki Tuomioja said in the Daily Telegraph published today (17 August) that European leaders must prepare for the looming breakup of the eurozone.
A modest 25 basis point interest rate cut to 0.50% expected from the European Central Bank in September will not be enough to stop the rot and would be largely symbolic, as the rate is already so close to zero and can do little to stimulate borrowing.
While ECB President Mario Draghi has promised he will do whatever it takes to save the euro, and large-scale purchases of short-term Spanish and Italian debt are likely later this year, there is nothing on the horizon that economists see as pointing to vigorous recovery.
No crisis ‘end-game’
Rubén Segura-Cayuela, economist at Bank of America Merrill Lynch, said that the "absence of a clear end-game or roadmap to an end-game" for the eurozone debt crisis was holding back consumers and stopping businesses from investing or hiring.
The Reuters poll predicted the eurozone economy, which shrank by 0.2% in the second quarter, will contract by the same amount in the current quarter. That is slightly deeper than the 0.1% contraction forecast in the July Reuters poll.
But that relatively mild slide masks much more severe downturns in Italy and Spain, the third and fourth largest eurozone economies, and an outright collapse in Greece, where nearly one quarter of the population is now out of work.
Economists are getting progressively more confident of an official recession in the third quarter, with the range of forecasts narrowing to just 0.1% growth to a 0.8% contraction. Only one economist predicted growth.
The Reuters poll found the vast majority of economists did not expect the central bank to try to cap Spanish and Italian bond yields as has been suggested by some, nor will it resort to buying anything other than government bonds on the open market.
Poll respondents were split on the likelihood of another long-term refinancing operation like the ECB conducted in December and then in February, essentially hosing the markets down with over one trillion euros of three-year cash.
What has changed over the past several months is the perception of Greece's future in the eurozone. Forty-five of 64 economists polled in August expect Greece to remain in the currency bloc in the next 12 months, compared with 35 of 64 economists in a similar poll in May.
Finland’s exit plan
Meanwhile, Tuomioja said Finnish officials have prepared for the break up of the single currency with an "operational plan for any eventuality."
"There are no rules on how to leave the euro, but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe's future," Tuomioja is quoted as saying in the Daily Telegraph.
"It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame," he said.
Tuomioja, a veteran minister in one of the eurozone's four AAA-rated countries, said the breakup of the euro could make the European Union stronger.
"It is not something that anybody is advocating in Finland, let alone the government. But we have to be prepared. The break up of the euro does not mean the end of the European Union. It could make the EU function better," he said.
