EU’s problem is not in Germany but in France

As Barclays analyst Antonio García Pascual puts it, France currently poses a bigger problem than we think.

Growth perspectives have not changed after the elections. Prospects are still gloomy, with weak GDP figures in the first quarter, the lack of credit lending and strength of the euro.

Markets’ eyes are set on Mario Draghi and June 5. Barclay’s Antonio García Pascual believes that to see some QE we’d need a long-term inflation outlook below 2%, then the central bank would have Bundesbank’s blessing to act.

If Bloomberg is correct, long-term inflation expectations 5 years over 5 years, are anchored clearly above 2%, as you can see in the chart above.

One of the most effective measures should be ABSs purchase, García Pascual points out, although he doesn’t think that that can be done in the short term since there is no market and new (banking and insurance) regulations are needed.

 

 

 

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