OECD cuts euro area growth forecast to 1.7%

 

The OECD is looking at 1.7% growth for the euro area this year – with <st1:country-region w:st="on">Germany</st1:country-region> 1.5%, <st1:country-region w:st="on">France</st1:country-region> 1%, and <st1:country-region w:st="on">Italy</st1:country-region> 0.1%, according to a report by Frankfurter Allgemeine, while the OECD is much more optimistic about the <st1:place w:st="on"><st1:country-region w:st="on">US</st1:country-region></st1:place> economy, where economic growth is now expected to be 1.8%, against a previous forecast of 1.2%. The reasons are the increase in commodity prices and the financial crisis. FAZ reports that the German economy is likely to stagnate until the end of the year. The German finance minister Peer Steinbruck commented that the German economy was in much better shape now than five years ago, and in better shape than other euro area economies. He pointed towards the continued robust performance of the labour market. The OECD has also changed tack in that it no longer criticises the ECB interest rate policy, which it now considers appropriate.

 

 

Oil back to almost $100

The oil price dropped sharply yesterday, by over $10 to $106pb for Western Texas Intermediate, as markets were relieved about the relatively mild impact of hurricane Gustav. As always when the oil price sinks, the dollar rises, as Americans need to spend less money on oil imports. The euro/dollar exchange rate fell to $1.45. The impact of these changes was also positive for European stock markets yesterday. The story is carried by every European business paper.

 

 

Variable mortgage rates now above 6%

Il sole 24 ore has a story that Italian variable mortgage rates have reached a record of over 6%, the highest level since 2002. Average rates for new mortgages have gone up from 5.8 to 5.9%, after the three-month Euribor, the benchmark on which many Italian mortgages are calculated has gone up to over 5%. The one-month Euribor, another benchmark, has risen to only 4.5%, a level at which it has stabilised.

 

 

<st1:country-region w:st="on"><st1:place w:st="on">Ireland</st1:place></st1:country-region>’s deficit heading for 4% of GDP this year

<st1:country-region w:st="on"><st1:place w:st="on">Ireland</st1:place></st1:country-region> managed to get from a healthy surplus into a Maastricht Treaty busting deficit in no time, according to a report in the FT. For the first eight months of this year, the country recorded a deficit of some €8.4bn. The government official estimate is for a 2.75% deficit this year, but the report says this estimate is disbelieved by virtually everybody in <st1:country-region w:st="on"><st1:place w:st="on">Ireland</st1:place></st1:country-region>. The opposition says that the deficit will be 4% this year and 5% next. The main reason for the deterioration in public finance is the housing slump, which has hit VAT receipts and lead to a fall in stamp duty.

 

 

Sarkozy regards financial crisis the result of fraudulent behaviour

The FT has a story saying that Nicholas Sarkozy wants the EU to play a leading role in setting up a “financial Interpol” to track down market abuse and financial fraud. Sarkozy has apparently bought into the story that the financial crisis is the result of reckless agents by rating agencies and others, and he regards the appropriate response to be one of policing. He was speaking in response to a French government report which made 30 recommendations to tighten financial regulation. The article says the report advocates a series of international conferences where regulators meet and change their rulebooks.

 

 

 

 

Balladur on the French economy

Writing in Le Monde, former PM Edouard Balladur makes a classic supply-side argument to revive the sagging French economy. For him the priority is the budget deficit, which is now in danger of exceeding the Maastricht Treaty’s 3% limit. He said a combination of reforms and deficit reduction would restore the competitiveness of the French economy. He also makes historical comparison, arguing that periods of deficit reduction coincided with periods of high growth for the French economy.

 

 

Credit card spreads on the rise

The Naked Capitalism blog has an interesting entry about the spreads for credit card debt, which have risen to record levels. It quotes a Bloombery article saying that Amex paid 130bp over Libor in its last sale of AAA-credit card backed securities, as the delinquency rate for credit card debt is increasing. The blog also makes the point that <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> law is much tougher on people with credit card debt than with housing debt, which in many states in non-recourse, meaning that people can simply walk away from their mortgage.

 

Munchau on a fiscal stimulus

Writing in FT Deutschland, Wolfgang Munchau makes the case for a conditional fiscal stimulus for <st1:place w:st="on"><st1:country-region w:st="on">Germany</st1:country-region></st1:place> (and the euro area). He says he is generally sceptically about such programmes, given that in the past the political implementation usually resulted in schemes with net negative economic effects. But he says this is a rare situation in which a stimulus may be needed, not because the economy is current in depression – which it is not – but because monetary policy is currently not able to provide its own stimulus. At the very least, <st1:country-region w:st="on"><st1:place w:st="on">Germany</st1:place></st1:country-region> should allow the automatic stabilisers to work and not trying to save in a recession. But depending on how the financial crisis pans out, this may not be enough.

 

 

Eurointelligence wishes to thank the Collegio Carlo Alberto for their support to help us maintain eurointelligence.com a free public service.

---