The most important event in the EU this week
Dwain Ross
21 / February / 20
Visitors: 267
The main agenda was the creation of a banking union, a mechanism transferring the supervision and rescue functions of bad banks to a supranational level. The first task was successfully solved: at the end of next year, the ECB will transfer supervision of the 130 largest banks - 85% of the banking assets of the Eurozone.
The remaining banks will remain under the authority of national regulators during the transition period. The second task, the creation of a supranational fund, will be solved much more slowly. Countries agreed on a fund of 55 billion euros, but it will appear only in 2016. Although this amount may not be enough even for the local banking crisis, however, the very availability of the fund will make it possible to respond more quickly to challenges, and financial markets - less nervous stress test results in the Eurozone.
Eurozone's preliminary PMI in processing rose in December to 52.7 from 51.6. The largest contribution was made by the growth of new orders, the maximum since June 2011. In contrast, PMI services fell to 51 from 51.2. In general, PMI indices indicate weak and unstable recovery. But the growth is supported by international trade: in October, its surplus amounted to 17.2 billion euros. This is an almost twofold increase compared to 9.6 billion euros in October 2012. Seasonally adjusted data also support optimism: exports grew 0.2%, imports fell 1.2%.
S&P, which has consistently downgraded the ratings of the Eurozone countries this year, decided to end the year on a minor note and downgraded the entire Eurozone from AAA to AA +. Although the concerns of S&P regarding the financing of the budget by the participating countries are justified, we believe that the effect of the decision will be political, not economic. The budget of the Eurozone according to the Maastricht agreements should always be balanced, and the debt of the Eurozone as an independent issuer is small $ 76.5 billion and is not comparable with the debts of the participating countries.
Good news for the ECB: inflation in the Eurozone accelerated slightly from 0.7% in October to 0.9% in November, despite the deflationary pressure on energy prices that has been going on for 4 months. Although this result is still closer to 0-1% than to 2.2% last November.
A new coalition government has been formed in Germany. Angela Merkel was re-elected Chancellor, and Wolfgang Schäuble remained a staunch supporter of tightening budget policy. In addition, Jörg Asmussen, the German representative on the ECB's board of directors, officially left for personal reasons, who consistently and successfully defended the ECB’s policy in the German media. These personnel decisions, in our opinion, strengthen the German government, but do not facilitate the negotiation processes on key problems of the Eurozone.
Judging by the expectation indices, the Germans are already dominated by the Christmas mood: PMI, IFO and ZWE rose above expectations, and GFK even reached the best value in 7 years. Their optimism, however, does not extend to France and Italy - according to ZWE, expectations for them, on the contrary, have worsened. France’s preliminary PMI in processing - 47.1 and services - 47.4 worsened last week. They have not been able to gain a foothold above the psychologically important mark of 50 points since 2011. The risk of another recession is becoming ever more real. At the same time, France’s PMI regularly underestimates economic growth, which is why we are more inclined to believe the neutral result of the INSEE national statistical office survey - 100 points.
Against the backdrop of unsatisfactory economic results, Francois Hollande set a record, becoming the most unpopular president in more than 30 years of polling history - only 26% of respondents approve of his activity. It is well illustrated by the current situation and the open letter published last week to the government from multinational corporations operating in France, asking them to clean up labor and tax laws to increase France’s investment attractiveness.
The GDP of Ireland, which refused a week earlier from the anti-crisis support of Troika, grew by 3 square meters. By 1.5%. At the same time, growth was mainly provided by construction - 2.2%, transport and telecommunications - 2.1%, while exports decreased by 0.8%, and agricultural production by 2.9%. The statistics are certainly positive - for Ireland's highly dependent on trade open economy, the growth of non-tradable sectors will increase stability.
