Eq: Dev ex-US


In a much stronger than expected action, the ECB’s President, Mario Draghi, yesterday announced that the bank would enact a series of moves to combat inflation. The ECB will begin charging banks 0.1% for deposits (a negative interest rate), introduce a €400 bn loan stimulus program, and no longer withdraw money from the system to account for its bond purchases in 2010 and 2011. Further, Draghi made a strong statement which boosted markets and offered confidence that the ECB would not let Europe drift into deflation, saying “if required, we will act swiftly with further monetary policy easing”. Draghi also noted that in relation to the prospect of quantitative easing, which is much more complicated and politically sensitive in the EU than in the US, the ECB would “intensify preparatory work related to outright purchases”.


FINSUM: This is the boldest move the ECB has made since 2012, when Draghi effectively saved the Euro. Hopefully, it will have the intended effect, though markets are hoping for more QE.


The German government is finally giving in to relentless business demands and is set to lift the ban on fracking within the country by next year. The business sector has been lobbying relentlessly for the government to allow fracking in order to be more competitive with the US, but the recent boost the movement has received by the apparent need for energy independence from Russia has added gravitas. The government has mandated that fracking would still need to be approved as safe to other resources and the population, with safety having proven a major sticking point in the German coalition government’s opposition to fracking in recent years. German business and consumers have been plagued by high taxes and duties on energy as the country implements a switch to renewable sources of power. Businesses say this has made them less competitive on the global stage. Germany is home to an estimated 2.3 tn cubic meters of natural gas, which could provide 35% of its needs on an annual output basis.


FINSUM: So one of the big opponents to fracking on the continent has fallen. It may be only a matter of time until the EU and other European governments also give in.


In what is highlighting more the dysfunction inherent in the Eurozone than the success of the single currency, Lithuania passed a major hurdle to joining the Euro yesterday when the European Central bank formally announced that the country had met its monetary conditions for adoption of the currency. From January 2nd next year the country will begin using the Euro. In theory, all countries in the EU are obligated to move towards making the necessary reforms to join the Euro, but in reality, the final seven countries have made no changes, and have no current plans to do so. Sweden, Hungary, Romania, Bulgaria, Croatia, Poland, and the Czech Republic are all members of the EU, but not the Eurozone and are legally obliged to make efforts to join. However, none appear eager to do so because of the European debt crisis and the “straitjacket” of a single currency that the crisis has highlighted. Lithuania says it is pressing ahead with joining because it will provide additional “security” for the country, especially in light of new pressures from Russia. A single currency helps small countries defend themselves from currency speculators by handing over central banking duties to their EU parent.


FINSUM: The Euro crisis has deeply sapped any desire countries formally had to join the Euro, and with anti-EU populism thriving, it does not appear this will change any time soon.

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