European Economics Quarterly: 'Buy the ticket, take the ride'

The euro area economy is still on track for a modest recovery in 2015. GDP is expected to grow by 1.4% this year and 1.6% next year, ie, slightly above trend. The re-emergence of the Greek crisis over the past few weeks is unlikely to change the near-term outlook. However, business confidence has been more or less leveling off since the beginning of the year, and do not expect growth to accelerate further over the next two years. Inflation, although having bottomed, will rebound only gradually and is unlikely to approach the ECB's 2% target anytime soon, notes Barclays.

Therefore, it is expected, ECB is set to continue its asset purchase programme at least until September 2016 and possibly even longer. Moreover, it believed there is a non-negligible chance that additional measures will be announced by the end of this year, and will depend on financial market developments.

After the deal agreed on 13 July to launch negotiations for a third Greek bailout and the Greek parliament's vote on prior actions, the risk of a "Grexit" in the near term has receded. However, the situation will remain fluid for several months, if not years, as the implementation of the third programme will be challenging. More worrisome, the Greek crisis has altered the irreversibility of the monetary union. To avoid a return of the redenomination risk in the future, it is crucial that the euro area moves toward more integration, along the lines of the "Five Presidents Report", says Barclays.