Italy is threatening us with another time bomb. The country’s banks have 360 billion euros of doubtful loans and the EU (that is to say the sinister Eurogroup), as intelligent as ever, is pressuring for the bail-in rules, to which ultraliberal & co are so addicted, to be implemented by the book.
The European Central Bank kept its interest rates and policy plans unchanged on Thursday and said the immediate stress caused to markets by Britain’s shock vote to leave the European Union had been contained.
George Soros via Caixin | Europe’s leaders must seize the moment to push forward reforms that can reshape the EU into an organization that people want to be a part of. Until the British public voted to leave the European Union, the refugee crisis was the greatest problem Europe faced. Indeed, that crisis played a critical role in bringing about the greater calamity of Brexit.
As the Brexit initial turmoil little by little abates, the ECB has no immediate reason for acting. Its room for manoeuvre already seems extremely tight. Running negative rates allows a most limited scope for driving down the money price. The Euro slide provides on its own enough impetus to the economy. The case for further loosening lacks of enough ground. The wait-and-see stance by the Federal Reserve suffices to shore up the ailing pound.
via Macropolis | You are the outgoing British prime minister, responsible for calling a needless referendum whose result will – at best – lead to a painful realignment in your country’s relations with the rest of Europe and the wider world. What is your last action in Parliament? A moment of reflection about the decades of carefully constructed ties with EU member states and institutions that will now be overturned?
The next general election in the United Kingdom will take place in 2020. If the Article 50 notice is served in 2017, it is possible that the process of UK withdrawal from the European Union (EU) will not be concluded before the election. That might allow the UK electorate to take a second look at their decision on June 23 to leave the EU.
BofAML | We have been among the most bearish on Euro Area inflation, expecting 0.9% post-Brexit inflation in 2017, versus consensus at 1.3%. This also applies to core inflation, where we expect a very mild trend over the next two years that would leave core inflation slightly above 1% by 2018. Still, markets are pricing declining inflation over the next few years.
James Alexander via Historinhas | One of Scott Sumner’s great contributions to economics (blogging) has been his oft-repeated mantra of “not reasoning from a price change”. Probably its most familiar usage is related to the oil price, although there are many, many more.
BoAML | After Brexit, we followed through on our scenario analysis, penciling in a full-blown UK recession, cutting 0.5% off of Euro Area growth and slicing 0.2% off of US and global growth. Events since Brexit have not changed our call. The pound has plunged more than 11% since the vote, and both consumer and business confidence have tumbled.
It came as a surprise for market makers: the Bank of England left borrowing costs at 0.5% on Thursday in spite of the Brexit fears. Also, the central bank will keep the size of the Asset Purchase Programme at £375 billion and hinted it could launch a stimulus package in August. The pound spiked to two-week high and FTSE 100 turned negative after the announcement.