Eurozone Is Down With The Paradoxical Consequence Of A Stronger Euro - Crédit Agricole

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In the Eurozone the degree of economic discomfort is also quite high. If recent economic data surprised on the upside, it did not hide the growing gap between Germany, which is progressing well, and France, which is lagging behind. The issue of excessive growth divergence within the region remains unresolved. It is a serious impediment to the implementation of efficient one-size-fits-all policies and prevents against an overly optimistic reading of aggregate economic indicators showing some improvement is ‘around the corner’

Of course, questioning the pace of expected economic improvements encourages markets to try to gauge the likelihood of support measures that may be taken. Market participants understand that nothing really specific will come from new fiscal initiatives; this is the reason why they are scrutinising monetary policy to see the possible outcomes. A clear distinction seems to be made between a majority of central banks wanting to ensure against any risk of disappointment on the growth front and a tiny minority considering that the issue of insufficient economic performance must be addressed through more structural reforms. Among developed countries, the US Fed, the Bank of England and also the Bank of Japan are in this first camp; the ECB is more isolated in the second one. While EU governments are not as of today in a phase of huge creativity concerning new initiatives (because of general elections in Germany being held next September), the ECB does not want to make their life easier just yet. This should be the main conclusion of the next governing council.

Markets are a little hesitant and this is the reason why they are both ready to believe in the recovery story and sensitive to evidence that support measures will be implemented if necessary. In both cases, the Eurozone is down, with the paradoxical consequence of a stronger EUR.