BoAML | Even with structural reforms, trend GDP growth may not be consistent with comfortable debt sustainability in key peripherals by the time inflation normalizes. If the euro area does not make progress towards fiscal union in the meantime, the ECB will likely have to remain involved on the bond market.
One month ahead of the referendum on EU membership, polls show no clear winner. The campaigners aiming to anchor the UK in Europe cannot match the warmongering messages from those eager to steer the country away from the continent.
In Sober Look, Marcello Minenna gives us a clue about a possible new breach in the euro’s structure. A few years ago (2011-2012), when the euro was going through its worst time, one of the consequences was that the central banks in the peripheral countries increased their debt position with TARGET2.
Some drivers are so happy when they don’t have to pay their traffic fine immediately, but without realising that a few days they will receive official notification with a surcharge. Something like this has happened with Brussel’s decision to refrain from imposing an immediate fine on Spain for failing to meet its deficit commitment until June 26th. In exchange, the EC has demanded a tough adjustment amounting to 8 Bn€ over this year and next.
The 2008 financial crisis was not a one-off event. The resources that were available to cope with that crisis would not necessarily be there if there was another crisis. Government debt and GDP ratios are still high, and pension and health costs are escalating across Europe.
Bank of Portugal governor, Carlos Costa, believes that Portugal should find a systemic solution similar to that recently adopted in Italy to enable banks to reduce the weighting of non-performing assets.
via Macropolis | Neo-Nazis marching through the streets of Sweden, the far-right making its political presence felt in Austria, a beefed up military and police presence on borders in many parts of Europe and stinging criticism on moral and legal grounds of the “one in, one out” agreement with Turkey from human rights groups – these are just some of the signs of the existential crisis that the European Union is experiencing.
Natixis AM | The upcoming UK referendum on EU membership appears to be a knife’s edge contest. Although financial markets have already felt some impact, if the vote produces an “out” result, global markets face additional turbulence this summer.
BARCLAYS | Euro area Q1 preliminary GDP was revised down slightly to 0.5 % q/q from the flash release (-0.03pp), accelerating from Q4 0.3% q/q growth. German GDP rose 0.7% q/q, in line with our expectations, as robust domestic demand offset weak exports.
UBS | Positive developments for Greece and broader European assets Monday’s Eurogroup on Greece contained a number of positive developments relating to the country’s on-going programme review as well as debt relief. We expect those developments to support Greek and broader European risk assets, where we have argued for upside (see most recently “Which risks to fade; which risks to take” ).