EU talks investment, Germany balances budget

January 13, 2015

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The European Commission will unveil legislative proposals for its 315 billion euro investment plan and the findings of a public consultation on the investment elements of a planned EU-U.S. free trade deal which could significantly boost growth.

Jean-Claude Juncker’s much vaunted investment programme has only a few billion euros of state money behind it. Its aim is to leverage private investment in to the tune of something like 15 times. There are some doubts that this will work.

As for the EU-U.S. free trade deal – or TTIP – pretty much everything hangs on a U.S. Congress decision on whether to grant Barack Obama fast-track negotiating powers. If that doesn’t happen it will probably run into the sand of the next U.S. presidential election.

Juncker will address the European Parliament as will Italian Prime Minister Matteo Renzi, a vocal proponent of spending to boost growth rather than continue the focus on cutting debt. In that, he could soon be joined by a Syriza-led government in Greece while in Spain, polls show new left-wing party Podemos has surged into the lead ahead of elections later this year.

The euro zone is clearly in need of stimulus with growth non-existent and inflation now negative yet Germany, its largest economy, is seeking to run a tight fiscal ship and appears to want to curb any money-printing programme by the European Central Bank.

Today, Berlin is expected to release official figures for the 2014 budget. Sources told us the “schwarze Null”, or balanced budget, has been reached a year earlier than expected thanks to low interest rates and strong tax revenues. It remains to be seen but that seems unlikely to prompt the government to loosen its purse strings.

Greece’s anti-bailout Syriza party holds a steady lead of 4.5 percentage points over Prime Minister Antonis Samaras’ conservative party ahead of a Jan. 25 snap election, an opinion poll showed late on Monday. Both parties’ ratings rose 2 percentage points from a poll by the same institute in December.

Syriza says it will cancel austerity imposed under Greece’s 240 billion euro bailout and renegotiate some debts, raising fears of a standoff with EU/IMF lenders that could result in Greece leaving the euro zone.

German officials have told us scenarios, including a possible Greek exit, were being examined by technical experts in Berlin. Also being explored is a political compromise with Syriza leader Alexis Tsipras should he take power.

The chances of “Grexit” are seen as slim given it is in no one’s interest. We know thought was being given last year to extending maturities on Greek loans so there is a deal to be done.

With a banking union now in place, most Greek debt held by other euro zone governments and EU institutions and the ECB poised to buy lots of euro government bonds there are good reasons to think that Greece can no longer bring down the currency bloc as a whole, no matter what happens in Athens. But it remains a risk most would prefer not to take.

The bond market continues to buy into that view. Greek 10-year borrowing costs have shot up to 10 percent but Italy and Spain can still borrow for a decade at around 1.9 and 1.7 percent respectively.

Italy aims to sell 7 billion euros of 2018, 2021 and 2030 fixed-rated bond at auction today.

The Russian rouble opened 1.8 percent weaker against the dollar following a continuing decline in the oil price, which has now hit a six-year low.
British retail spending growth slowed in December after consumers splurged on November’s “Black Friday” bargains, skewing the Christmas spending pattern, and prices continued to fall broadly, the British Retail Consortium reported overnight.

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