The situation in the Eurozone is calm but uncertain. The recent bailout package for Greece and the European Central Bank's 1 trillion euro liquidity programme have calmed but the situation remains fragile as many of the underlying problems still need to be dealt with. Governments in the Eurozone are faced with the complex task of reducing debts, reforming economies while attempting to deliver growth. If sufficient progress is made, we expect to see growth next year but Eurozone output is most likely to shrink this year.
Greece, Portugal, Italy, Spain and Ireland are most vulnerable to further shocks and to the depressing effect of deleveraging. But even the stronger northern European countries are vulnerable and not immune to further deterioration.