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Swiss Bank Warns European Recession Will Collapse Eurozone, ‘Radicalize’ Voters

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Steve Birr Vice Reporter
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A new recession in Europe will collapse the eurozone, according to analysts at a Swiss bank who warn the resulting political and civil unrest could crumble the foundations of its single currency system.

Economists at Credit Suisse released a research note Wednesday titled “Close to the edge,” analyzing the consequences of another recession in Europe. The European Central Bank (ECB) is engaging in negative interest rate policy while expanding its money supply as it tries to fight off economic pressure from cheap oil, a troubled banking sector and an industrial slowdown, reports The Telegraph.

“The viability of the euro is contingent on the current recovery,” Peter Foley at Credit Suisse wrote in the research note. “If the euro area were to relapse back into recession, it is not clear it would endure.”

The warning states that troubling trends in unemployment claims, a rising risk of corporate defaults and a depreciation in asset prices after hitting record highs in recent years are adding to downward pressure on the eurozone and could “radicalize” voters if trends persist. Economists at Credit Suisse fear structural issues, coupled with the market volatility of this year, reveal a deterioration in the longterm fundamentals of Europe’s collective economy.

“The near-term outlook for economic activity, as well as the risks around it, has shifted materially downwards,” Foley writes in the note. “The capacity for a renewed downturn to push the euro area into a destructive negative economic, political and financial feedback loop is considerable.”

Following the the financial crisis of 2008, Europe experienced a wave of civil unrest, particularly in areas hit hardest by the recession, like Greece. The movement of radical unrest in Greece saw clashes with police, some of whom were lit on fire by protesters. Greece slipped back into recession at the end of 2015 and civil unrest over the economy continues.

Policymakers at the ECB will meet in March to discuss monetary options to quell the growing instability of their economy. Eurozone countries managed collective growth of only 0.3 percent in the fourth quarter of 2015, and individual economies such as Italy and Germany have either stagnated or drastically pulled back. A further round of quantitative easing and another cut in already negative interest rates are expected, reports Express.

“In the still fragile environment we face today, what is essential is that policy works to reduce uncertainty,” Benoit Cœuré, executive board member at the ECB, told The Telegraph.

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