French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies.
Europe may accelerate a shift away from its austerity-first agenda this week as the new Italian government changes course and a German-Spanish investment pact underscores a renewed focus on combating record unemployment.
Policy makers mustn’t underestimate the consequences of a possible Greek euro exit, which could spark a run on lenders and overwhelm the European Central Bank, said Joachim Fels, Morgan Stanley’s head of global economics.
European policy makers signaled flexibility on the application of an unprecedented bank tax in Cyprus, seeking to overcome outrage that threatens to derail the nation’s bailout. European shares and the euro fell.
Portugal will need a bailout and investors will then focus on Spain as there’s “little to stop the contagion” from Europe’s sovereign-debt crisis, said Joachim Fels , co-chief global economist at Morgan Stanley.