The Eurozone: convergence remains elusive as 'one size fits all' policies don't fit all

Date: 4th June 2018

The Eurozone: convergence remains elusive as 'one size fits all' policies don't fit all
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest developments in the Eurozone:
  • A new Italian Government, comprising a coalition of the Five Star Movement and the League, has been sworn in.
  • Its policies include fiscal expansion (including tax cuts) and an end to austerity. If they are implemented, leading to Italy's transgressing the 3% of GDP budget balance rule, conflict can be expected between Rome and Brussels.
  • The Eurozone remains a deeply divergent economic bloc with Italy (and of course Greece) clearly under-performing. Italy's GDP is still 5.5% lower than in 2007, it has a debt/GDP ratio of over 130% and it has huge net liabilities with the ECB.
Other recent developments have included:
  • Data released so far for 2018Q2 suggest a modest pick-up in activity after 2018Q1's soft patch.
  • The EU (Withdrawal) Bill is expected to return to the Commons, week beginning 11 June.
  • The OECD nudged up its GDP growth forecasts for the UK again - to 1.4% for 2018 and 1.3% for 2019.
  • The US announced higher tariffs for steel and aluminium imports from the EU, Canada and Mexico, leading to retaliation.

Oil prices have been higher than expected at the start of the year, reflecting tighter fundamentals and geopolitical tensions (including President Trump's withdrawal from the Iraq deal, threatening sanctions on Iran).

Ruth Lea said, 'The political situation in Italy appears to have been resolved, at least for the time being. And talk of Italy's departure from the euro seems premature. Nevertheless, the Eurozone is deeply dysfunctional with its 'one-size fits all' policies clearly not fitting all. Convergence throughout the economic bloc remains elusive. Italy, a major Eurozone economy, is clearly underperforming and, moreover, is expected to continue under-performing.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
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Arbuthnot Banking Group plc published this content on 04 June 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 04 June 2018 09:22:06 UTC