New European Commission macro forecasts for the euro zone and the EU have been given added significance by an alarming drop in inflation to 0.7 percent which has heaped pressure on the European Central Bank to ward off any threat of deflation.
There are myriad other questions – Will the Commission predict that Italy will miss its deficit target? What will it say to those countries in bailout programmes – particularly Greece, where the troika returns for a bailout review today, and Portugal? And what about France’s sluggish economy? PMI surveys on Monday showed it is acting as a drag on the euro zone recovery.
Against that backdrop, European Commission President Jose Manuel Barroso will speak at Frankfurt’s St. Paul’s Church, the seat of the first democratically elected parliament in Germany. He is expected to outline the political priorities of the European Union in the months to come and spell out his expectations of a new German government.
German coalition talks between Angela Merkel’s centre-right and the centre-left SPD resume with a third meeting of the group of 77, yes 77, negotiators.
They still need to hammer out compromises on banking union, a minimum wage and other issues in order to meet their goal of forming a “grand coalition” government by Christmas. Until then, major euro zone political moves are on hold.
The ECB’s Thursday meeting already looms large for the markets. Today, Mario Draghi, Joerg Asmussen and Vitor Constancio all speak although they should be in pre-meeting purdah on the monetary policy front. A policy change is still unlikely on balance but the central bankers, who are mandated to target inflation at close to 2 percent, will be discomfited by price pressures evaporating.