Why EU elections can matter

May 19, 2014

Some interesting action over the weekend: in a foretaste of this week’s EU elections, Greece’s leftist, anti-bailout Syriza party performed strongly in the first round of local elections on Sunday, capitalizing on voter anger at ongoing government austerity policies.

If it did even better in the EU polls it could threaten the ruling coalition and tip Greece back into turmoil just as there are signs that it has turned the corner.

Bank of England Governor Mark Carney sounded dramatically more alarmed about Britain’s housing market, saying it posed the biggest risk to the economy and harboured deep structural problems.

There can now be little doubt that the Bank will use new powers to try and rein the market in, particularly in London, when its Financial Policy Committee meets next month. Carney’s concern prompted Deputy Prime Minister Nick Clegg to say the government might have to rein in its “help to buy” scheme which aims to get more people on the property ladder.

Among other measures, the BoE could recommend caps on the size of home loans granted in relation to a property’s value or a borrower’s salary but one of the problems with London – the real hotspot – is that the market is being ramped up by an influx of foreign money which does not require a mortgage to buy.

The European Central Bank has a distinctly different headache. After a mixed bag of euro zone GDP data which showed Germany charging ahead and Spain holding its own but France stagnating and Italy, Portugal and the Netherlands slipping back into contraction, there seems little to dissuade it 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.

Today, ECB policymakers Jens Weidmann, Yves Mersch and Benoit Coeure, as well as Spanish central bank chief Luis Linde, are all speaking and we get the Bundesbank’s monthly report.

Ukrainian presidential elections are set for next Sunday though whether they can successfully take place given the chaos in parts of the country where pro-Russian rebels are lobbying to secede, remains to be seen.

There have been some hints of a softening of tone from Moscow with Vladimir Putin belatedly gave rhetorical support to the election and signs of rapprochement on the energy front too. Having said it would demand advance payments for gas from Ukraine starting in June, Moscow agreed to restart gas talks with Ukraine if its new leaders pay off at least part of its gas debt.

Russian Energy Minister Alexander Novak and EU energy commissioner Oettinger will meet today in Berlin, along with the head of Gazprom, where they plan to set a date and time for three-way talks with Ukraine. On Saturday, Gazprom assured European customers it would continue to supply their gas, after its threat to halts supplies to transit nation Ukraine next month over non-payment.

There are more signs that Europe is not prepared to go to the wall over Russian sanctions. A confidential paper from the German-Russian chamber of foreign trade, which we got exclusive hold of, told Berlin the Ukraine crisis was already having a “massive impact” on German business in Russia and warned of dire consequences if Europe follows through on threats of economic sanctions.

Vladimir Putin will travel to China this week, hoping to sign a long-sought deal to supply it with gas. Both sides have yet to agree on a price. Gazprom says the talks are now in their “final stage” though it may have to lower its sights given the prospect of it losing business in Europe has rather strengthened Beijing’s negotiating hand.

NATO chief Anders Fogh Rasmussen is speaking in Brussels.

Initial Iraqi election results will trickle in today which will not be definitive but we know Prime Minister Nouri al-Maliki will be the likely winner.

Also over the weekend, to the relief of business leaders, Swiss voters overwhelmingly rejected proposals to introduce the world’s highest minimum wage of 22 Swiss francs ($25) per hour and also voted against spending $3.5 billion buying new Gripen fighter jets from Saab.

A Paris summit of west African leaders from Nigeria’s, Chad, Niger, Benin and Cameroon along with western officials agreed to work together to wage “total war” on Boko Haram saying the Nigerian Islamist group had become a regional al Qaeda that threatened all of them.

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