Odd stat of the day: Ratio of pop aged 20-29 vs 55-75 (“grad-to-granny” ratio) falls everywhere by 2030..except Denmark n Uganda, says HSBC
LONDON (Reuters) – Hints the euro zone may shift away from front-loaded fiscal austerity have been treated kindly by financial markets this week as bond investors seem comfortable with at least a measured tilt in the policy mix.
With business sentiment in many euro zone countries, notably Germany, deteriorating again this month and jobless numbers continuing to rise, policymakers have signaled a need to ease back on draconian deadlines for deep budget cuts.
One of the more startling moves of the week was the fresh rally in euro government debt – with 10-year Italian and Spanish borrowing rates falling to their lowest since late 2010 when the euro crisis was just erupting and 2-year Italian yields even falling to 1999 euro launch levels. The trigger? There’s been a slow build up for weeks on the prospect of new Japanese investor flows seeking liquid overseas government bonds – but it was signs of a sharp slowdown in Germany’s economy that seems to have had a perversely positive effect on the region’s asset markets as a whole. The logic is that German objections to another ECB rate cut will ebb, as will its refusal to ease up on front-loaded fiscal austerity across Europe. If its own economic engine is now suffering along with the rest, significantly just five months ahead of German Federal elections, then a tilt toward growth in the regional policy mix may not seem so bad for Berlin after all. And if euro economies are more in synch, albeit in recession rather than growth, then perhaps it will lead to a more effective regional policy response.
All that plays into the intensifying “growth vs austerity” debate, which had already shifted at the Washington IMF meetings last week and was sharpened this week by by EU Commission chief Barroso’s claim that the high watermark of EU’s austerity push had passed. On top of the Reinhart/Rogoff research farrago, it’s been a bad couple of weeks for the “austerians”, with only a UK Q1 GDP bounceback of any support for case of ever deeper fiscal cuts, and investors smell a change of tack. Their reaction? Not only have euro government borrowing costs fallen further, but euro equities too rallied for 4 straight days through Wednesday. Those arguing that investors would run screaming at the sight of a more growth-tilted policy mix in Europe may have some explaining to do.