The Telegraph’s Ambrose Evans-Pritchard is out with his take on the stress test assumptions released by the European Banking Authority authority today. He notes the potential for a tumble in French housing, which fits in with the worries about France’s economy that have been festering.
He also notes how the test have gone easy on Spanish banks:
The Spanish regulators are delightfully optimistic as usual, seemingly living in a parallel universe. So, if the EBA’s global shock were to occur – with a surge in 10-year US yields by 250 basis points this year, a further “tantrum” (the EBA’s word) in emerging markets that culminates in a “sudden stop”, and a fall in world trade – we are told that Spain could dodge the bullet deftly.
The tests also warn of a worst-case 5.6% in Spanish 10-year notes, which is hardly credible given the +7% rates in 2012.
His final target is the adverse scenario on inflation, which at worst assumes 1% price growth. He rightly points out the absurdity of that guideline.