Fresh from winning a vote of confidence in parliament, new Italian Prime Minister Enrico Letta heads to Berlin to meet Angela Merkel, pledging to shift the euro zone’s focus on austerity in favour of a drive to create jobs. He may be pushing at a partially open door. Even the German economy is struggling at the moment and the top brass in Brussels have declared either that debt-cutting has reached its limits and/or that now is the time to exercise flexibility. Letta will move on from Berlin to Brussels and Paris later in the week.
France, Spain and others will next month be given more time to meet their deficit targets and Berlin does not seem to object. Don’t expect Merkel to join the anti-austerity chorus but there are some hints of a shift even in Europe’s paymaster. Yesterday, it launched a bilateral plan with Spain to boost lending to smaller companies and said it could be rolled out elsewhere too. Details were very sketchy but something may be afoot. The European Central Bank, expected to cut interest rates on Thursday, is considering something similar although that is far from a done deal.
Forgotten about Cyprus, which only last month had financial markets in a lather and threatened to reignite the euro zone debt crisis? Today, Cypriot politicians vote on the terms of the bailout offered by the euro zone. It should pass but it could be tight. No single party has a majority in the 56-member parliament, and the government is counting on support from members of its three party centre-right coalition which have 30 seats in total.
Spain puts out its GDP data significantly earlier than the rest of the euro zone. First quarter figures are due and will show no sign of its recession tailing off. The government has just revised its forecasts and now expects a 1.3 percent contraction this year (worse than the previously predicted 0.5 percent). As a result, the budget deficit will also be higher than previously forecast, hence the need for leeway from Brussels. Madrid’s measures to boost growth, trumpeted in advance, proved to be short on specifics on Friday.
There’s a lot of data besides with German unemployment, euro zone inflation, UK and German consumer confidence/retail sales and French consumer spending reports all due. The German confidence reading is out and is the most upbeat in more than five years. The survey was taken after Cyprus was sorted out and as prospects of rising wages (Germany’s contribution to much-needed euro zone rebalancing) boost a desire to spend. However, actual retail sales edged down in March.