A two-day EU summit kicks off in Brussels hamstrung by the lack of a German government.
Officials in Berlin say they want to reach a common position on a mechanism for restructuring or winding up failing banks by the end of the year but with an entire policy slate to be thrashed out and the centre-left SPD saying the aim is to form a new German administration with Angela Merkel’s CDU by Christmas, time is very tight.
On banking union, a senior German official said Berlin had no plans to present an alternative plan for how a resolution fund might work at the summit and reiterated Berlin’s stance that national budget autonomy for winding up banks could not be outsourced.
Spelling out how it will test Europe’s big banks next year, the European Central Bank yesterday insisted a common resolution mechanism must be in place by the time it takes over supervisory powers.
France, Spain and Italy want a joint commitment by all 17 euro zone countries to stand by weak banks regardless of where they are. Germany, which fears it would end up picking up most of the bill, is worried about the euro zone’s rescue fund, the European Stability Mechanism, helping banks directly without making their home governments responsible for repaying the aid.
Despite the lack of policy progress, the summit won’t be a complete write-off.
The German government said Washington may have monitored the mobile phone of Chancellor Angela Merkel and she called President Barack Obama on Wednesday to demand an immediate clarification. That is bound to be raised in the Brussels discussions.
Distinctly drier will be European Commission pressing member states to create a single telecoms market and Britain’s David Cameron is promising a bonfire of red tape.
At least the leaders can point to recessions ending across the euro zone. Spain’s central bank declared yesterday that the economy eked out 0.1 percent growth in the third quarter, the first expansion in nine quarters.
Flash October PMI readings for the euro zone, Germany and France should all be in expansionary territory, pointing to moderate economic growth in the third quarter. China’s manufacturing PMI hit a seven-month high with new orders on the up.
Unemployment figures from Spain and France will make more sober reading. French President Francois Hollande has repeatedly promised that the upward trend in unemployment will be reversed by end-2013 but opinion polls show voters do not believe him and the monthly jobless claims figures are becoming increasingly politically sensitive publication as his deadline looms.
Spain’s jobless rate remains above 25 percent while around 11 percent of the French workforce has no job. You can’t talk about recovery with figures like that.
Sweden and Norway both hold monetary policy meetings. No rate moves are expected. Norwegian inflation has fallen after an alarming jump the month before and in Sweden, growth is lacklustre and inflation low. Rates in both countries are likely to rise next year with the Norwegians moving first.
Bank of England Governor Mark Carney and his rate-setting colleague Martin Weale both speak today. Minutes of their last policy meeting, released yesterday, showed the nine policymakers saw unemployment falling slightly faster than forecast due to a stronger-than-expected economic recovery. Sounds like good news and it is but it shows the difficulty of giving meaningful forward guidance on where interest rates are heading.
The Bank said rates will not rise until the jobless rate falls below seven percent (from 7.7 now) and expects it to take almost three years to get there. The markets don’t buy that.