Europe battles rising headwinds

This month’s increase in interest rates was a seminal moment for the European Central Bank (ECB), being the first time that it has started a cycle of monetary tightening ahead of the US Federal Reserve. The rise by 0.25% to 1.25% comes at a time when the euro area is being buffeted by a number of headwinds. As well as those affecting other economies, such as the aftermath of the Japanese earthquake and the rising oil price, the region also has to contend with a strengthened currency. Despite these formidable issues, we do not think they will be sufficient to derail a recovery in under...