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The European Court of Justice holds a first hearing on the legality of the European Central Bank's Outright Monetary Transactions programme. There won’t be anything definitive today but it serves to rekindle debate about the limits of the ECB’s powers.
In February, the German Constitutional Court asked the European Court to rule on the legality of OMT, the mechanism that drew a line under the euro zone crisis when it was unveiled in 2012. The court may give guidance about how best to make a final ruling which is expected in late spring next year.
The scheme has never been deployed because the mere threat of action prompted government borrowing costs to tumble to record lows. Now, the debate is centred on whether the central bank should start printing money to ward off a deflationary downward spiral.
If its bond-buying scheme was thrown out by the EU court, or German participation rejected by Germany’s constitutional court – something most legal experts think is unlikely – it would put a serious crack in the edifice and perhaps prompt markets to start testing the euro zone’s defences once again.
After a stunning fall in German industrial orders for August – the 5.7 percent monthly drop was the largest since the global financial crisis raged in 2009 – industrial output for the same month has just plunged by 4.0 percent, also the biggest fall in five years.
After Europe’s largest economy shrank in the second quarter there had been hope of a pick-up in the following three months but the thrust of recent data suggests it will be lucky to achieve any expansion at all.
EU leaders meet for a summit at which they were supposed to decide who gets which European Commissioner posts – one for each member state – in what will be a huge carve-up, so huge in fact that it may well be that only a very few jobs are decided tonight.
Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition but putting forward a low-profile politician as his point person in Brussels has not that made that any more likely.
After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.
There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.
European Central Bank President Mario Draghi will deliver an evening keynote speech in London – the scene for his game-changing “whatever it takes” declaration in 2012.
He is unlikely to come up with anything so dramatic this time but is clearly trying to convince that the ECB could yet start printing money if required to avert deflation.
By Neil Unmack and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Shire can get more from AbbVie. The London-listed drugmaker is pondering a fresh, $51 billion unsolicited bid from its U.S. rival. AbbVie touts shareholder support and is offering a hefty premium, but Shire’s board can probably extract one more increase in return for their recommendation.
EU heads of government and state dine in Brussels this evening to discuss their response to a big slap in the face from the bloc’s electorates.
Italy’s Matteo Renzi, who bucked the trend by winning handsomely as an incumbent prime minister, has the wind in his sails and has pledged to change Europe’s focus towards growth and job creation after years of fiscal austerity in response to the euro zone’s debt crisis.
By Swaha Pattanaik
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
The rally in peripheral euro zone debt seems unstoppable. Thank – or blame - the European Central Bank. Its talk about easing monetary policy, maybe as soon as June, is pushing bond yields to record lows in countries that faced borrowing costs of up to 17 percent a few years ago.
The European Union, as we exclusively reported yesterday, has agreed on a framework for sanctions against Russia, including travel restrictions and asset freezes, which goes further than many expected. The list of targeted individuals is still being worked on but will be ready for the bloc’s foreign ministers to look at on Monday.
Angela Merkel will speak to the German Bundestag about the standoff with Russia. Merkel has been cautious about imposing anything too tough as she tries to convince Vladimir Putin to agree to a "contact group" that would reopen communications between Moscow and Kiev. But yesterday she said measures would be imposed next week – after a Crimean referendum on joining Russia which the West says is illegal - unless diplomatic progress is made.
Worrying escalation in Crimea. Interfax reports Russian servicemen have take over a military airport in the Russian-speaking region of Ukraine and armed men are also patrolling the airport at Crimea’s regional centre of Simferopol.
Kiev has condemned the moves as an “armed invasion”.
There has been no bloodshed and there are more constructive noises from Moscow to weigh in the balance.