Cameron’s immigration conundrum

November 28, 2014

David Cameron’s long-awaited speech on immigration – which has been billed as his blueprint to win back disaffected Conservatives and others now voting for anti-EU UKIP – will be delivered today.

The UK premier will say that Britain’s continued membership of the EU depends on it being allowed to stop migrants abusing its welfare system and that incomers should wait four years before being eligible for benefits.

But there appears to be no call to curb the numbers coming in, which is what many in his party are demanding. As such, many of his fractious supporters are likely to say he has fallen short and say so loudly with an election only six months away.

There is some scope for the EU to agree on welfare curbs, although central and eastern European members will not like it, but none on restricting freedom of movement, a fundamental part of the single market which Britain professes to be the number one fan of.

Figures published on Thursday showed 228,000 EU citizens moved to Britain in the year to June – the highest recorded figure and one that shatters Cameron’s promise to bring the numbers down.

Euro zone inflation data for October will dominate markets, particularly with the United States sleeping off Thanksgiving Day excesses. German inflation, released yesterday, came in at at 0.5 percent – its lowest level in nearly five years – and Spain’s rate fell to -0.5 percent. The euro zone number is forecast to tick down to a paltry 0.3 percent.

That follows figures on Thursday which showed bank lending to euro zone households and companies contracted again.

To address that problem, the ECB has started offering banks four-year loans at ultra-cheap rates and has begun buying covered bonds and asset-backed securities to ease the burden on banks’ balance sheets and entice them to lend. Just out, German retail sales jumped 1.9 percent in October, partially reversing a 2.8 percent tumble in September.

The debate about quantitative easing is running hot after ECB President Mario Draghi declared “excessively low” inflation has to be raised fast and that the ECB will act more forcefully if its existing efforts to pump money into the listing euro zone economy fall short. Since then, ECB Vice-President Vitor Constancio has put us all on notice for action in the first quarter next year if the ECB’s balance sheet is not expanding as hoped.

The ECB won’t take the final leap into QE until next year when it has had time to gauge the impact of its existing measures. Given it is moving to a six-weekly timetable of policy meetings, that makes the March 5th meet the warm favourite for big decisions if it has failed to expand its balance sheet sufficiently. The prior gathering, in late January, looks too early for the evidence to have been sifted.

There won’t be much help from oil on the inflation front. OPEC decided not to cut supply in an attempt to prop up prices that have sunk by a third since June. Oil is down near a four-year low and Russia’s rouble has tumbled to a fresh record low.

We reported exclusively yesterday that the European Commission will tell France, Italy and Belgium today that their 2015 budgets risk breaking EU rules, but it will defer any action until March. At that point, France could face a multi-billion euro fine and Italy and Belgium be put on a disciplinary programme.

French Finance Minister Michel Sapin, who has rejected the idea of any punishment for failing again to meet EU budget deficit rules, will hold a news conference with his Irish counterpart, Michael Noonan, in Dublin later.

Greece acknowledged a risk of delay on Thursday to its planned exit from an EU/IMF bailout by the end of the year, rattling Greek stock and bond markets a day after talks on a bailout review failed to clinch a deal. Moody’s is due to review Greece’s credit rating today.

Greenland holds a snap election after Prime Minister Aleqa Hammond took a temporary leave of absence over a spending scandal. The nation of 57,000 people is quite evenly split on how it wants to develop its mineral and rare earth resources and if the opposition wins, changes to legislation on uranium mining are likely. This may sour investor appetite for the country after several London and Australian companies took the plunge.

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