The Eurozone: solid popular support despite the problems

Date: 25th June 2018

The Eurozone: solid popular support despite the problems
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Eurozone in the run-up to the European Summit on 28-29 June:
  • There are many economic disparities between Eurozone states, with Italy and, especially, Greece performing relatively poorly within the strictures of the euro. Nevertheless, there remains solid popular support for the euro - even in Italy and Greece.
  • Europe's Economic and Monetary Union (EMU) remains far from complete. Fiscal union, to support monetary union, remains a pipedream. The Commission is, therefore, obliged to pursue relatively modest and uncontroversial policies that, by their nature, do not tackle EMU's major deficiencies.
  • Following on from the ECB's decision to phase out QE by end-2018, there are some doubts about the ability of Italy (for example) to successfully market its sovereign debt, especially if the government instigates a major fiscal boost.
  • Greece's (third) support programme is due to end in August 2018, but it will continue to heavily scrutinised. Greece has been receiving financial support since May 2010.
Other recent developments have included:
  • The MPC voted 6:3 in favour of keeping the Bank Rate at 0.5%. But the Bank's chief economist voted for a rate rise, raising speculation of an August hike. It is reasonable to judge there is a 50:50 chance of a hike at this stage.
  • The public finances have improved faster than projected by the OBR. The ONS's latest estimate for public sector net borrowing (PSNB) is £39.5bn for FY2017, compared with the OBR's forecasts of £45.2bn (in March 2018) and £49.9bn (in November 2017). The OBR's forecasts can be inaccurate.
  • Concerning Brexit, the EU (Withdrawal) Bill has passed through Parliament. At the European Summit (28-29 June) it will probably be reported that little progress has been made in the UK-EU negotiations on the future framework since the transition period was agreed.
  • The Chancellor and the Bank Governor both discussed the updated financial relationship between the Treasury and the Bank at the Mansion House (21 June). There will be a £1.2bn capital injection from the Exchequer to the Bank's balance sheet in order to significantly increase the Bank's lending capacity.

Ruth Lea said, 'Neither the Italian or, especially, the Greek economies have fared well in the straightjacket of the euro. Nevertheless, popular support remains solid. In Italy the balance of those 'for' exceeded those 'against' by 32%. In Greece the balance was 42%. Doubtless there are several explanations for relatively high levels of support in the EU19, including a failure to link the currency with the economic policies damaging their economies as well as a general wish to appear 'modern' and 'European'. Under these circumstances it is difficult to see any government pushing for withdrawal from the Eurozone in the near to medium-term. And this even includes Italy where a populist, Eurosceptic government has recently been established.'

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 25 June 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 25 June 2018 10:22:00 UTC