Recent poor figures from Germany show that the Euro malaise has spread to the motor economy of the zone. Growth remains very slow and unemployment high in many countries within the single currency area. Money growth is almost non existent, confidence levels are low and new credit constrained.
The European Central Bank is putting the commercial banks through further stress tests. These may be necessary, but they are taking a long time. During this process banks are reluctant to lend additional money, for fear of their ratios remaining poor or weakening further. The ECB is offering more cheap loans to the banking system, but all the time they have limits on their balance sheets it is difficult for them to take full advantage of this to lend more money on to the commercial sectors.
The German authorities are still keen to avoid full scale Quantitative Easing in the zone to offset the weak bank position. All the time the commercial banks are under tough control any monetary experiment will have limited favourable impact on activity.
Meanwhile, in both the US and the UK self sustaining recoveries are underway, with commercial banks now capable of lending more money to facilitate sensible investment and consumption. In Japan where they are undertaking another huge quantitative easing they are still struggling to get decent money growth owing to the problems of their commercial banks.
In due course the UK and US will be able to put interest rates up a bit to make savings more worthwhile. In the meantime at least the US and UK have ended quantitative easing and do have growth and a better record on generating new jobs. The Euro zone still has not worked out how to recycle or limit the huge German balance of payments surplus, nor how to transfer enough money from rich to poor, or how to create a commercial banking system which can finance a decent recovery.