Into the Storm

The independent Office for Budget Responsibility (OBR) forecast assumes that the euro crisis can be resolved without too much fuss, which seems increasingly unlikely—and the uncertainty is pushing the euro zone towards recession fast. Across the continent banks are finding it hard to refinance their own debts cheaply. They are also shedding assets at an alarming rate in order to meet EU capital-adequacy targets by next June. Britain’s banks have lent heavily to businesses and governments in the euro zone’s worst trouble spots, as well as to German and French banks. The threat of a severe credit shortage will force businesses across Europe to conserve their cash and make them cautious about spending on new equipment or hiring new workers. Add in the ever more severe budget cuts planned by euro-zone countries and the picture gets even stormier.