The document summarizes the state of the euro-area economy in May 2008. It discusses how a credit crunch was reducing consumer spending and business activity across Europe. While GDP grew strongly in the first quarter, confidence was declining in Germany, France, and Italy. Inflation remained above the ECB's target rate, and bank lending to households and firms was decreasing. The Spanish economy in particular was suffering effects of the credit crunch that followed years of credit-fueled growth.