Eq: Dev ex-US
Ukraine’s new president, billionaire Petro Poroshenko, has announced that he has opened talks with Russia to relieve the tension in Eastern Ukraine. The region has been plagued for months by constant Pro-Russian separatist uprisings, which has led to numerous bloody confrontations, and now the president, a Russian ambassador, and a member of the OSCE have met to discuss a resolution to the violence. President Poroshenko has promised to promote “lasting peace” in Ukraine and has taken a more forgiving tone with the protesters, offering free use of the Russian language and more decentralisation to give eastern regions more power. However, many question the potential success of his diplomatic tactics in light of the fact that no separatists are being included in the peace discussions. This doubt is further inflamed by the fact that the separatists are loosely organized and have numerous diverging interests, making it unlikely a single resolution to end conflict could be achieved.
FINSUM: Poroshenko has a mighty task on his hands to end both the actual war and the media war occurring in Eastern Ukraine.
Much like the EU itself, Britain is currently undergoing an identity crisis that is threatening to tear it apart. This crisis is best shown in Scotland, where residents will vote on a referendum to leave the UK in September, but it is also apparent in Wales, Northern Ireland, and even England. All parts of the country want to see more “devolution”, or the handing of powers back into local hands. England, and the UK, has long had very centralised control, and regional governmental bodies have little control over their own budgets, taxation, or laws. Further, this article makes the excellent point that as joint experiences of empire, war, and shared sacrifice fade out of living human memory, the bonds that held the UK together for so long have faded and left four distinct groups squabbling. Finally, beyond just the national-level disagreements, there is growing discontent all over the UK (England included) about the extent to which London is becoming a separate nation-state.
FINSUM: The discontent in the UK is threatening to change the European political picture drastically. In the balance hangs the existence of the three hundred year-old United Kingdom, and Britain’s membership in the EU.
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.
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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.
Economic figures for the Eurozone were released yesterday, and the results were dismal—inflation dropped to just 0.5% in May, after reading 0.7% in April. Even in the strongest inflationary country in Europe, Germany, prices only rose a measly 0.9%, showing just how anemic price growth is across the Eurozone. The strong drop, which negates any hope of a strengthening trend for inflation, means that the ECB is very likely to act in easing monetary conditions in order to stoke inflation. Economists expect the bank to take a number of possible measures as a first step, including lowering interest rates, extending more loans to financial institutions, and possibly implementing a negative deposit rate to encourage lending. The bigger prospect is whether such early first steps could be the preliminary stages of a move towards Federal Reserve-style quantitative easing, something the ECB has discussed but not committed to. Eurozone unemployment stands at 11.7%, with rates above 25% continuing in Greece and Spain.
FINSUM: The ECB’s long-standing policy conservatism is being strongly tested by the lack of inflationary pressure in the Eurozone. Will this be the moment they step outside their shell with QE—likely not. However, if they do, financial markets will soar.