Euro zone

FOMC – not much concrete information

Short-term economic risks have diminished The Open Market Committee of the Fed left its key interest rates unchanged yesterday evening. The accompanying press statement provided no concrete indications as to the possible timing of the next interest rate adjustment. However, the current economic assessment is significantly more positive than in the previous statement. The Fed states that short-term risks for the US economy have diminished. The evaluation of the situation of the labour market also sounds significantly more positive. Various indicators suggest that capacity utilisation in the labour market has increased. Consumer spending is reported to be robust and economic growth has improved. At the same time, the text passage stating that the Fed is closely monitoring the global situation was left unchanged. This could be understood as an indication that the Brexit consequences for global economic growth and for the US economy are not yet foreseeable and that in…

Bank Lending Survey signals that lending is growing – How successful is ECB policy really?

As can be seen from the ECB’s July Euro Area Bank Lending Survey, the banks in the Euro area still expect increasing credit demand. Although the number of more optimistic banks has shrunk somewhat compared to April, they are nevertheless still clearly in the majority. Above all, the banks take a positive view of credit demand from enterprises and households. Nor do they plan to tighten their credit standards. That sounds good. So is there hope that the upturn in bank lending that is gradually emerging will pick up momentum and stimulate investment in the economy? Ultimately, this is what the ECB’s very expansionary monetary policy aims to achieve. A closer look at the statistics shows that the inundation of very cheap central bank funds has not been very efficient so far: while the volume of loans granted by commercial banks “to Euro area non-financial corporations” grew a considerable 3.1…

Crisis on the Italian banking market and the consequences for Europe

Since the Brexit decision, the Italian banking sector has come under enormous pressure once again. In particular the share prices of domestic banks have recorded palpable losses, but risk premiums on bank bonds have also widened. However, multiple reports of the great efforts being undertaken by the Italian government to inject state aid into the domestic banking sector have caused some of the spreads to narrow again. The Italian government’s first request for a bail-in (i.e. capital aid without forcing bond creditors to participate in losses) was rejected by the EU Commission with the expected reference to the ban on state aid. The Italian government quickly denied any accusations that it would support its crisis-stricken banks with public funds without the approval of the EU Commission. Nor have the other rumours and press reports that the banking market might be salvaged through state or private finance been backed by further…

The EU in an identity crisis

At the latest since the Brexit vote, the EU has been in an existential crisis. The 27 member states that will remain after a UK exit in approx. two years’ time are tussling to come up with a coherent strategy for how the EU should be structured in future. However, the opinions as to what changes are necessary and what form they should be given diverge greatly. The main bone of contention is whether the convergence criteria should in future be relaxed. France and Italy are spearheading the member states that want to see government-driven economic policy. The German federal government is of the opposite opinion. There are also differences on the question of whether there should be greater EU integration. While the individual member states predominantly insist Brussels should now shed competences, the EU Commission prioritises more integration. A key institutional problem the EU faces is that its citizens…

Brexit might be the best thing to happen to the EU

Many must feel like they have woken up to a nightmare, but this nightmare is for real – the British have decided to leave the European Union. Yet Brexit might be the best thing to have happened to the EU in recent years. Brexit could provide the impetus for a better, more modern Europe. With 52 percent voting to leave the EU, the result was very narrow – a decision that no one had seriously expected in the run up to the referendum. This was also reflected on financial markets which were caught completely off guard. In the short term, calm will return to stock markets, but further political and economic developments will prove crucial in determining the long-term direction of financial markets. Now it is up to politics and the economy to restore stability, a mammoth task for those responsible. The referendum has left Great Britain a divided country….

BVerfG gives the green light for OMT

The German Federal Constitutional Court (BVerfG) rejected the complaint brought before it against the ECB’s OMT programme, declaring the suit filed to be in part “inadmissible” and in part “unfounded”. Moreover, in the opinion of the court, the “rights and duties of the German Bundestag including its fundamental responsibility for budget policy have not been impaired.” The Karlsruhe court thus followed the European Court of Justice (ECJ), which ordained in its ruling of 15 June 2015 that the ECB’s OMT programme was compatible with European law under the conditions and constraints stated at the time. Although the BVerfG again expressed substantive reservations as regards the OMT, these were not so severe as to require the court to deviate from the principle that European law must take precedence over national law. Today’s judgement by the BVerfG is unlikely to have surprised many market players. Following the ECJ’s judgement last year the…

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