Reuters blog archive
France is unveiling its 2015 budget right now and it’s not making pretty reading, confirming that Paris will not get its budget deficit down to the EU limit of three percent of GDP until 2017, years after it should have done.
The health minister has said the welfare deficit is expected to run nearly one billion euros over budget this year and data on Tuesday showed France's national debt hit a record high in the second quarter, topping two trillion euros for the first time. It will near 100 percent of GDP next year.
All this is predicated on growth picking up and the proportion of national income going on public spending will fall only glacially.
French President Francois Hollande and Italy’s Matteo Renzi are leading a drive to use the maximum amount of flexibility within EU rules to allow a bit more spending or lower taxes to get growth going – French Finance Minister Michel Sapin has just said the pace of budget consolidation in the euro zone must be adapted to reflect the reality of a stagnant economy.
Germany, as usual, is sceptical and is making great play of the fact it will have no net new borrowing next year for the first time since 1969 even though its economy is barely growing. European Central Bank President Mario Draghi has also called for more active fiscal policy from euro zone governments, a hint perhaps that he thinks the ECB has done as much as it can.
The United States and some Gulf allies have launched air strikes inside Syria against Islamic State militants.
A combination of fighter, bomber and Tomahawk attack missiles sounds like a formidable barrage so if intelligence about where the militants are is good, a significant blow could have been dealt.
Scottish nationalist leader Alex Salmond and former British finance minister Alistair Darling, who is fronting the campaign to remain part of the United Kingdom, go head-to-head in the first and possibly only live television debate of the campaign. It is a bigger moment for Salmond, Scotland’s First Minister, who must garner a shift in the polls which consistently put his “Yes” campaign significantly behind with the referendum only six weeks away.
At the last British general election, Liberal Democrat leader Nick Clegg was widely perceived to have won the leaders’ debates yet it didn’t translate into votes. There are, however, a large number of “don’t knows” to play for in Scotland and Salmond is by common consent the more charismatic figure and slick orator.
During the two-hour debate, Darling is likely to highlight the uncertainty over whether an independent Scotland could retain the pound and automatically be part of the EU and how the nationalists would fund their public spending pledges.
Manufacturing PMI surveys across the euro zone and for Britain are due. The emerging pattern is of an improving third quarter after a generally poor second three months of the year.
The UK economy continues to romp ahead – growing by 0.8 percent in the second quarter – but on the continent there are signs of a new slowdown. The Bundesbank now forecasts no Q2 growth at all in Germany and though the euro zone flash PMI, released a week ago, showed the currency area rebounding in July, that largely came at the cost of companies cutting prices further, thereby pushing inflation lower still.
Turkey’s ruling AK party is due to announce its presidential election candidate. Prime Minister Tayyip Erdogan is widely expected to announce his presidential bid, and then emerge victorious in the polls after a 40-day election campaign. Polls give Erdogan around 55 percent of the vote and a 20 point lead.
Under Erdogan, Turkey has made great strides economically and diplomatically but some if not much of that progress has been tarnished by a crackdown over the past year on anti-government protests and a purge of the judiciary and police in response to corruption charges against his acolytes which the premier says represent a plot by shadowy forces to oust him.
The ripples of EU election results are being felt, no more so than in France where the National Front topped the poll.
The day after the results, Prime Minister Manuel Valls promised further tax cuts for French households. The government is already committed to a 30 billion euros cut in labour taxes to help business but insists all this can be done while meeting its EU deficit commitments.
Following a mixed bag of euro zone GDP data last week which showed Germany charging on and Spain holding its own but France stagnating and Italy, Portugal and the Netherlands slipping back into contraction, flash PMI surveys for the euro zone, Germany and France certainly have the power to jolt the markets today.
As things stand, there seems little to dissuade the European Central Bank from loosening policy next month. Five senior sources told us it was preparing a package of policy options for its early June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.
German Chancellor Angela Merkel is in Washington for talks with Barack Obama after Europe and the United States imposed wider sanctions on Russia.
Obama is already looking ahead to a third round of measures and has hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite. At home, the Republicans are accusing him of weakness so will he put pressure on Merkel to move ahead in a way that the European Union has shown it is entirely unready to, at least yet?
French President Francois Hollande’s cabinet meets to adopt a new debt reduction plan.
After outlining 50 billion euros of savings for 2015-2017 to help pay for consumer and business tax cuts, the government is due to sign off on already delayed deficit reductions to bring it, eventually, to three percent of output as demanded by Brussels.
It’s ECB day and the general belief is that it won’t do anything despite inflation dropping to 0.5 percent in March, chalking up its sixth successive month in the European Central Bank’s “danger zone” below 1 percent.
The reasons? Policymakers expect inflation to rise in April for a variety of reasons, one being that this year's late Easter has delayed the impact of rising travel and hotel prices at a time when many Europeans take a holiday. Depressed food prices might also start to rise before long.