MacroScope

EU carve-up

Elected president of the European Commission Juncker is congratulated by European Parliament President Schulz after his election in Strasbourg

EU leaders meet for a summit at which they were supposed to decide who gets which European Commissioner posts – one for each member state – in what will be a huge carve-up, so huge in fact that it may well be that only a very few jobs are decided tonight.

Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition but putting forward a low-profile politician as his point person in Brussels has not that made that any more likely.

Because Juncker, the former Luxembourg premier, is from the centre-right and western Europe, the leaders may look for socialists or women from northern, eastern or southern Europeans for the other two key posts of European Council President and foreign policy chief. Denmark’s Helle Thorning-Schmidt keeps getting mentioned in dispatches for the former though her country is not in the euro zone, while the foreign minister of Italy is the frontrunner for the latter.

Conservative Spanish Economy Minister Luis de Guindos is seen as favourite to become the permanent head of the Eurogroup caucus of euro zone finance ministers. But it only requires one piece of this house of cards to be pulled for the whole edifice to collapse. The likelihood is that it will be some weeks yet before all the appointments are settled.

The summit will also discuss the latest in Ukraine. The EU agreed last week to add 11 new names to its list of people hit with asset freezes and asset bans, but that was a highly incremental move which in no way suggests it is any closer to imposing the wider trade sanctions that would really hurt. Nonetheless, with capital outflows of $75 billion in the first half of the year and a flatlining economy, Russia is already hurting.

New EU takes shape

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The new EU aristocracy will be put in place this week with the European Parliament to confirm Jean-Claude Juncker as the next European Commission President today and then EU leaders gathering for a summit on Wednesday at which they will work out who gets the other top jobs in Brussels.

Although Juncker, who will make a statement to the parliament today which may shed some light on his policy priorities, is supposed to decide the 27 commissioner posts – one for each country – in reality this will be an almighty horse-trading operation.

Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition.

Draghi vs Weidmann

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European Central Bank President Mario Draghi makes a lengthy appearance in the European Parliament in Strasbourg. He will doubtless reassert that the ECB would start printing money if necessary but, as we reported last week, policymakers are fervently hoping they won’t have to and that a raft of measures announced in June will do enough to lift the economy and inflation.

Bundesbank chief Jens Weidmann fired another broadside over the weekend, saying rates were too low for Germany and policy should remain expansive for no longer than absolutely necessary.

With less than a week to run to the July 20 deadline for a deal, Iran and the six world powers are miles apart on Tehran’s nuclear programme. U.S. Secretary of State John Kerry said on Sunday major differences persist – largely over uranium enrichment —  with Iran and Tehran did not demur.

Bank of England, the first mover?

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After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.

There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.

The British economy is growing fast and its housing market has been running red hot – prices in London have shot up nearly 26 percent from a year ago – though the BoE says rate rises are not the first tool to deal with that. Britain’s closely-watched RICS housing survey, released overnight, showed signs that some of the heat is starting to come out with its house price balance easing back.

Draghi in London

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European Central Bank President Mario Draghi will deliver an evening keynote speech in London – the scene for his game-changing “whatever it takes” declaration in 2012.

He is unlikely to come up with anything so dramatic this time but is clearly trying to convince that the ECB could yet start printing money if required to avert deflation.

Draghi has taken the ECB a long way in terms of radical policies which some of its members have found hard to swallow. But QE could yet prove to be a bridge too far. Shortly after Draghi held out the prospect last week of printing euros to ward off deflation, Bundesbank chief Jens Weidmann and his German ECB colleague Sabine Lautenschlaeger mounted a rearguard action.

Juncker begins to fill in the gaps

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European Commission president-elect Jean-Claude Juncker will hold talks with the various political groupings in the European Parliament as he seeks to develop policy positions. Most interesting would be indications about which way he is bending in the growth versus austerity debate.

Italy’s Matteo Renzi, resurgent after a strong performance in May’s EU elections, is pressing for a focus on measures to get the euro zone economy firing and has even managed to get Germany to talk the talk. But any leeway will be within the existing debt rules, not by writing new ones.

We know from the history of the euro debt crisis that Berlin can only move so far, so fast and only last week it proudly proclaimed it would not be a net borrower of zero next year, for the first time in over 45 years. Having said that it has just passed into law a generous national minimum wage and its labour costs are rising, so there is some rebalancing going on.

Balance tilted in Ukraine?

slaviansk.jpgUkrainian forces pushed pro-Russian rebels out of their stronghold of Slaviansk on Saturday. Its re-capture represents Kiev’s most notable military victory in three months of fighting in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.

The regions of Donetsk and Luhansk are likely to be next in the government forces’ crosshairs.

Talks between Iran and the six world powers –  the United States, Britain, France, Germany, Russia and China – over its disputed nuclear programme stretch through the week, leading up to a July 20 deadline which has been set for a definitive deal.
Most diplomats involved in the talks expect that date to lapse though we reported exclusively that Iran has reduced demands for the size of its future nuclear enrichment programme.

ECB: talk but no action

EThe European Central Bank holds its monthly policy meeting and after launching a range of new measures in June it’s a racing certainty that nothing will happen this time. However, ECB President Mario Draghi has plenty of scope to move markets and minds in his news conference.

We are still waiting for details of the ECB’s new long-term lending programme which is supposed to be contingent on banks lending the money on to companies and households. Last time they got a splurge of cheap money, the banks largely invested in government bonds and other financial market assets. With euro zone yields now at record lows, the ECB would not like to see a repeat.

Draghi will certainly be asked to clarify what looked like a new attempt at forward guidance. Last month, the ECB offered up new four-year loans to banks, and extended its offer of unlimited liquidity to the end of 2016.

Renzi and Schaeuble: Compare and contrast

renzi2.jpgItalian Prime Minister Matteo Renzi will spell out to the European Parliament his priorities for Italy’s six-month tenure of the EU presidency.
Emboldened by a strong showing in May’s EU elections, Renzi is pressing for a focus on growth rather than austerity and has even managed to get Germany to talk the talk.

At an EU summit last week, leaders accepted the need to allow member states extra time to consolidate their budgets as long as they pressed ahead with economic reforms. They pledged to make “best use” of the flexibility built into the bloc’s fiscal rule book – not, you will notice, countenancing any change in the rules.

As always in the EU, this will stand or fall on the attitude in Germany. We could get an early reading on that when German Finance Minister Wolfgang Schaeuble presents 2015-2018 budget plans. Berlin plans to refrain from any net new borrowing from 2015 for the first time since 1969 and will spend projected higher tax revenues on education and infrastructure.

Erdogan on the move

Turkey's PM Erdogan walks to his plane at Esenboga Airport in AnkaraTurkey’s ruling AK party is due to announce its presidential election candidate. Prime Minister Tayyip Erdogan is widely expected to announce his presidential bid, and then emerge victorious in the polls after a 40-day election campaign. Polls give Erdogan around 55 percent of the vote and a 20 point lead.

Under Erdogan, Turkey has made great strides economically and diplomatically but some if not much of that progress has been tarnished by a crackdown over the past year on anti-government protests and a purge of the judiciary and police in response to corruption charges against his acolytes which the premier says represent a plot by shadowy forces to oust him.

If he wins he is expected to exercise far more power than his presidential predecessor. Aides have said he would rule with a “council of wise men” made up partly of close allies and would oversee top government business, effectively sidelining some ministries and ministers.