Forex Flash: Euro sovereign spreads declining but still seek panacea – Goldman Sachs

FXstreet.com (Barcelona) - The introduction of the OMT has served to reduce intra-Euro area sovereign spreads. However, “our new data indicator suggests that it has done little to reduce cross-country divergence in bank lending rates to non-financial corporations (NFCs), which has remained stubbornly high in recent months despite the stabilization of sovereign markets.” suggests the Economics Research Team at Goldman Sachs.

The new indicator is consistent with our established view: market segmentation remains, divergence in bank lending rates persists and, as a result, immediate growth prospects in the periphery are bleak. Cutting policy rates does little to alleviate these problems. According to the team, “Credit easing measures targeted at specific problem countries and sectors (e.g., loans to SMEs in the periphery) are a likely path for the ECB to pursue in addressing the implied macroeconomic concerns.”