ness climate surveys remain weak, an unsurprising consequence of excess industrial capacity. e Jn Europe, financial markets continue to rally in the Periphery. Five -year Spanish credit spreads have fallen below 3% from over 6% last July, and without the ECB firing a single shot (e.g. buying any bonds). The

w that German resignations from the ECB in 2011 (Stark, Weber) were not, as I saw them, a reflection of a battle being waged between Germany and the Periphery. They were instead a reflection of a battle that Germany had already lost; the resignations were merely signs of the capitulation that followed. Ita

r risks, but does not otherwise change the cautious view we have given low growth, inter-regional capital flight and rising debt burdens across the Periphery. The primary benefit of the Spanish bank recap may be reduced financial sector contagion risk to Asia and the US; we'll take it. Michael Cembalest