This seems to be the first time in several months that ECB President Draghi has been rather anti-climactic. The disappointment or the “sell the rumor buy the fact” scenario we suggested is, in fact, unfolding, and the euro is correcting higher.
The European Central Bank meets tomorrow. The focus is on the details of the asset-backed securities and covered bond plan that was announced last month.
There are three key issues related to this new initiative: What instruments will be purchased, how much will be bought, and how long will the purchase program last?
Stricter rules on U.S. corporate tax dodging combined with weak European manufacturing data to cause European stocks to slide.
Economists expect the European Central Bank to double down on its asset-buying purchasing program in the short term as weak growth threatens the eurozone. Negative interest rates on European bank holdings have not been enough to encourage greater lending that in turn would encourage greater private sector growth.
As France continues to stagnate economically because of socialism and high taxes, and Italy falls back into an increasingly worrying recession, the international community is often looking to Germany as a savior for the Euro. With Portugal and Greece struggling to stay on their feet, it’s common to hear economists preaching about how the south of Europe could learn a lot on public debt and governance from their German neighbors.
The European Central Bank lowered interest rates as the Bank of England kept its record low rate steady on low inflation and falling wages in Britain. The ECB decision comes soon after France and Germany showed disappointing GDP growth and the possibility of a recession. Italy also fell into its third recession in as many years.
Dovish monetary policy was expected from the ECB despite German resistance, as German politicians pressed for further austerity in peripheral nations. Germany has seen a growing current account surplus in recent years.
By now everyone is noticing that most nations are coming out of the financial crisis which began in 2008, even if it still means supplying large sums of money for the economy. However, some of the processes being used to bring nations out of this stump are coming under question (such as Bush’s and Obama’s ridiculous stimuluses), especially when it comes to the European Central Bank (ECB). As many people know, banks are the driving force of an economy.
The euro zone economy stagnated in Q2, as the rest of the region offset the unexpected 0.2% contraction in the German economy. The implied yield of the German bund future dipped below 1.0%, though the yield in the cash market held in slightly better. The euro itself, did not make a new lows. Indeed, last week’s low for the euro (~$1.3333) remains intact.
Despite efforts to improve the state of the economy worldwide, including the European Union, geopolitical issues have dictated otherwise, causing various countries’ stocks to slip and create an increased amount of worry. While most analysts believed the European Union was starting to see a comeback, the lowering numbers have shocked them, and they believe the geopolitical issues have a direct effect.
The governments of Spain and Ireland on Thursday separately announced plans to exit from international banking bailout programmes, while opting too against taking up a precautionary credit line, as market conditions and banks’ stability improve.
According to Reuters, Spain had taken up 41 billion euros of aid last year to rescue a number of banks. Ireland on the other hand had sought 67.5 billion euros of rescue funds in November 2010.
Shale projects in Eastern Europe are being challenged by delaying tactics of industry majors. Media coverage of shale gas development is positive; but in Lithuania and Poland, global oil & gas companies are one by one dropping bids to explore for unconventional. Lack of business awareness and overdependence on preliminary estimates of shale reserves may also lead to the same result in Ukraine.
