Real M1 deposits continue to contract in the Eurozone periphery, as noted in a post last week. There are some interesting country differences, however.
Italian real M1 deposits, having declined sharply in late 2010 and early 2011, returned to six-month growth in July – see first chart. Spanish deposits, by contrast, have recently started to fall again, having perked up in the spring. This suggests greater scope for economic and fiscal disappointment in Spain than Italy, in turn casting doubt on the sustainability of the collapse in the Spanish / Italian 10-year government bond yield spread from 90 basis points in June to -5 currently.
Among the bail-out countries, Ireland may be decoupling from Portugal and Greece, with real M1 deposits flat in the six months to July versus falls of 7% and 10% respectively.
Other hopeful Irish developments include a large fall in relative unit labour costs since 2008 – second chart – and a recent reduction in banks’ need to borrow from the ECB / Central Bank of Ireland – third chart.
