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Spanish economy grows by 1.4% in 2014Guadalupe del OlmoGuadalupe del Olmo


Posted on 30/01/2015

By Guadalupe del Olmo

Spain's recovering economy grew by 1.4% in 2014, provisional official data showed today, after shrinking by 1.2% in the previous year as the country remains plagued by mass unemployment.

It is the first time there has been full-year economic growth in Spain since 2008 when a labour-intensive property bubble collapsed, pushing millions of people out of work.

Growth accelerated in the fourth quarter to 0.7% from 0.5% in the third quarter, according to provisional figures from the National Statistics Office.  The provisional figures are in line with the Spanish government's estimate for economic growth in 2014.  The government predicts the Spanish economy, the euro zone's fourth-largest, will expand by 2% this year.

Economy Minister Luis de Guindos said Monday the economy could grow by as much as 2.5% this year if oil prices and the euro stay low. The statistics office will publish final gross domestic product figures for 2014 at the end of February when it will outline which sectors posted the strongest growth.


The Spanish economy has benefitted from an improvement in consumer demand and a recovery in the construction sector, the Bank of Spain said in its latest economic bulletin.

Spain has also benefitted from the arrival of a record 65 million visits from foreign tourists last year, which gave its key tourism sector a boost. Exports were also up by 5.8% during the first 11 months of 2014 compared to the same time the previous year, according to the economy ministry.

The jobless rate slid to 23.7% in 2014, down from 25.7% in the previous year, but remains one of the highest levels in the developed world. Meanwhile euro zone deflation accelerated in January to -0.6% Euro zone consumer prices fell by an alarming 0.6% in January, accelerating further into negative territory and confirming deflation could be settling-in for the long term, EU data showed today.

The drop was brought on by plummeting oil prices. 

It follows a decision by the European Central Bank last week to launch a €1.14 trillion bond-buying spree to drive up inflation in the euro zone.
Today's fall comes after a 0.2% decline in December. The figure was below expectations for a decline to -0.5%.  


The euro zone has only endured negative inflation rates in one other period, from June to October 2009. The 0.6% decline this month matched the lowest figure during that period, in July 2009. 

Sharply reduced fuel costs explained the drop. Energy prices plunged 8.9% in the month. Unprocessed food was 0.9% cheaper, outweighing a 1.0 percent rise in the cost of services. 

Oil prices have more than halved since June, with Brent at just below $50 a barrel today. 

Core inflation, which excludes volatile energy and unprocessed food prices, dipped to 0.6% in January from 0.7% for the previous three months. 

Headline inflation has also been in what the ECB calls the "danger zone" below 1% since October 2013. The ECB aims to keep inflation just under 2% over the medium term. 

The ECB plans to purchase sovereign debt from March this year until September 2016, releasing €60 billion a month into the economy. 


Germany this month joined the countries with negative inflation rates this month. In Spain, consumer prices fell for a seventh consecutive month and at their fastest rate in the euro zone era. 

In a separate release, Eurostat said euro zone unemployment dipped to 11.4% in December, after three months stuck at 11.5%. This was the lowest level recorded since August 2012.

Today's figures show that the number of people without a job decreased by 157,000 from a month before to 18.129 million. EU countries with the lowest unemployment at the end of 2014 were Germany (4.8%), Austria (4.9%) and the Czech Republic (5.8%).

Today's figures also reveal that Irish unemployment rates fell in 2014, from 12.1% in December 2013 to 10.5% in December 2014. This means there were 35,000 fewer unemployed people registered at the end of 2014 than in December of the previous year. Irish youth unemployment stood at 21.6% at the end of 2014, down by 4.2% from the previous end-of-year figure of 25.8% in 2013. The highest youth unemployment levels in the EU was in Spain (51.4%), Italy (42%), and Portugal (34.5%).  No figures beyond October 2014 are available for Greece, when the figure was 50.6%.


By Guadalupe del Olmo




Solidarity should not replace necessary decisions, Schäuble tells MEPsGuadalupe del OlmoGuadalupe del Olmo


Posted on 28/01/2015

By Guadalupe del Olmo

EU solidarity should not replace decisions that must be taken in countries suffering economic difficulties, German Finance Minister Wolfgang Schäuble told Economic and Monetary Affairs Committee MEPs in Tuesday’s special debate on the review of the economic governance framework. His Italian colleague Pier Carlo Paduan, vehemently rejected criticism of measures to bring down Italy’s deficit and stressed the need to better coordinate reform policies. 

Asked for his opinion on greater flexibility or risk sharing within the EU Stability and Growth Pact, Mr Schäuble said that Germany wants to play by the book, and that there is no appetite to change primary EU law and that EU solidarity should not replace necessary decision making in countries suffering from economic difficulties.


German Finance Minister - Wolfgang Schäuble German Finance Minister - Wolfgang Schäuble

However, Germany's Finance Minister also said that European Union governments should not contribute directly to the bloc's 315 billion euro investment fund, challenging in this way Brussels' call to expand it as a way to relaunch growth.

The European Commission also wants EU countries to pay into the fund to maximise its impact on stagnant economies, but Berlin is concerned about governments adding to their already high debt loads.

"We are not in favour of national government contributions to the fund," Schäuble remarked to broadcast reporters.
He acknowledged the need for solidarity in the euro zone and warned against conducting a "blame game" against bad performers. But where countries have difficulties on the financial markets, he said "we have to tackle the causes of these problems. Solidarity cannot replace necessary decisions by Member States."

He rejected the view that the European Central Bank is overstepping its mandate by insisting on implementation of the reform programme in Greece: "The demands on Greece are in line with the ECB's mandate. They are fully legitimate. The people of Greece are suffering more than people elsewhere in Europe. Not because of     demands from ‘Brussels’ or the ECB, but because of the failure of Greek political elites over decades."

In defence of the EU support programme for Greece, he cited the higher than average growth figure and the reduction of the debt.

Moreover, the European Commission calculates that the Juncker’s Plan for a European Strategic Investments Fund will create 1.3 million jobs, said Commissioner for Growth and Jobs Jyrki Katainen in a debate with Economic and Monetary Affairs Committee MEPs on Monday.

The UN International Labour Organization (ILO) has said it expects the EU's large-scale investment plan to create millions of new jobs. However, it warned that efforts needed to be focused more on the eurozone's strugglers.

The ILO said the plan could only be successful if it was directed in a much clearer way towards the countries with the highest jobless rates in Europe.  The programme, it added, should also include training policies for high-skilled jobs.

MEPs raised concerns about the risks associated with the Fund, its possible impact on the EU budget, favourable Stability and Growth Pact treatment of national investments and the selection of the projects.

EP Budget Committee Chairman - Jean Arthuis EP Budget Committee Chairman - Jean Arthuis

For his part, EP Budget Committee Chairman Jean Arthuis set out his goals and those of his committee for 2015 and beyond.

Arthuis from the ALDE Group (Group of the Alliance of Liberals and Democrats for Europe) stressed the need to reduce unemployment and to focus on job creation. He outlined some main objectives: to offset the outstanding amount of between 25-30 billion euro; to prepare the revision of the Mid-Term Multiannual Financial Framework and to implement “Juncker’s Plan” in the best funding conditions possible.

On budgetary concerns, a meeting of the High Level Group on Own Resources will be held on the 5th of February, Chaired by Mr Mario Monti, who will present the Group's first assessment of the current system of financing the EU budget. However, Mr Arthuis, highlighted the difficulties of taxation uniformity given the different administrative traditions across the EU.


By Guadalupe del Olmo for EU Spectator





Merkel says she wants Greece to 'remain part of our story'

Posted 23/01/2015

German Chancellor Angela Merkel said today she wanted Greece to "remain part of our story".
She made her comments ahead of elections this weekend which could sweep the anti-austerity Syriza party to power and determine whether the country stays in the euro zone.

"At the heart of our principles lies solidarity. I want Greece, despite the difficulties, to remain part of our story," Merkel said during a press conference in Florence with Italian Prime Minister Matteo Renzi.
Renzi said he was "not worried about the results of the Greek election. I respect the citizens' choice and from next week the 28 (EU) partners will work with" whoever wins "with great willingness."

The election - the second in three years - comes with Greece still locked in talks with its EU-IMF creditors for a € 7.2 billion tranche of bailout loans the state needs to stay afloat.

After a six-year recession in which the national output shrank by a quarter, Greeks are being called on to determine whether to stick with spending cuts demanded by their international creditors, or demand a new deal on the country's huge debts.

Syriza, which has a steady lead in opinion polls over conservative New Democracy - the party formerly in government - wants to redraft the EU-IMF bailout which it says has brought nothing but misery for the past five years.


The party's campaign has sparked concern among officials in the European Union, the European Central Bank and the International Monetary Fund.
Meanwhile the Euro still under pressure after plunging on ECB's QE plan. It fell below $ 1.12 today after the European Central Bank announced a plan to pump more than €1 trillion into the economy, and two days before a snap election in Greece.

The euro fell to a low of $ 1.1115, on track for its biggest daily percentage loss against dollar since November 2011, and hitting its lowest level since September 2003.

The single currency - which hit an 11-year low of $ 1.1316 after the announcement yesterday - was standing even lower at $ 1.1168 this lunchtime, down from $ 1.1359 in New York last night. It was also worth 74.64 pence. The ECB said it would inject €60 billion a month into financial markets from March until September 2016, a programme known as quantitative easing (QE).

That was more aggressive than the € 50 billion pace that many had expected.
The move came after the region's inflation turned negative in December, stoking fears that the          19-nation euro zone is on the brink of a dangerous deflationary spiral of falling prices.

Analysts said the euro could weaken further as the ECB move underscores a growing policy split with the US Federal Reserve. The Fed has wrapped up its own quantitative easing (QE) programme as it eyes a mid-year interest rate hike.

Traders are also keeping any eye on weekend elections in Greece where left-wing party, Syriza, may sweep to power on its pledge to redraft the country's multi-billion EU-IMF bailout and erase most of its huge debt.

That has stoked fears of Greece's eventual exit from the euro zone.



ECB says banking sector continuing to heal slowly

Posted 20/01/2015

Europe's battered financial sector is showing further signs of healing as conditions for bank loans ease and demand for loans picks up, a key ECB survey showed today.

The European Central Bank said in its quarterly bank lending survey showed that banks are easing credit standards for customers across all loan categories.

"According to the January 2015 bank lending survey (BLS), credit standards for all loan categories continued to ease in net terms in the fourth quarter of 2014," the report said.

But it cautioned that "at the same time, it has to be kept in mind that the level of credit standards is still relatively tight in historical terms."

In addition, demand for loans is also increasing, the ECB wrote.

"Rising net loan demand continued to be reported for the fourth quarter of 2014, in particular for loans to non-financial corporations and for consumer credit," it said.

Looking ahead, banks expect credit standards to continue to ease in the first quarter of 2015, and loan demand also to continue to pick up, the ECB continued.

The survey's findings should provide some encouragement to the ECB, since the chronic weakness of credit activity in the euro area has been blamed for the absence of any noticeable recovery in the 19 countries that share the single currency.

The ECB complains that its ultra-easy monetary policy has not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and mid-sized enterprises (SMEs) which are the region's economic backbone.

In an attempt to address this, the bank has cut its interest rates to new all-time lows and also unveiled a series of programmes to pump liquidity into the economy.

For example, it is making cheap funding available to banks via its TLTRO or targeted long-term refinancing operation programme in the hope the banks will lend the cash on to businesses.

At its policy meeting on Thursday, the ECB is expected to open the liquidity floodgates still further ad announce a new programme of sovereign bond purchases, known as quantitative easing or in other words money printing.




IMF cuts its global growth outlook for this year and next

Posted 20/01/2015

The International Monetary Fund has lowered its forecast for global economic growth in 2015.

It has also called for governments and central banks to pursue accommodative monetary policies and structural reforms to support growth.

Global growth is projected at 3.5% for 2015 and 3.7% for 2016, the IMF said in its latest World Economic Outlook report, lowering its forecast by 0.3 percentage points for both years.

The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy "through other means".

"New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,"  Olivier Blanchard, the IMF's chief economist, said.


The US was the only bright spot in an otherwise gloomy report for major economies, with its projected growth raised to 3.6% from 3.1% for 2015.

The US largely offset prospects of more weakness in the euro area, where only Spain's growth was adjusted upward.

Projections for emerging economies were also broadly cut back, with the outlook for oil exporters Russia, Nigeria and Saudi Arabia worsening the most.

The drop in world oil prices, which have fallen more than 50% since June, is largely the result of OPEC not cutting supplies, a decision that is unlikely to change, Blanchard said.

"We expect the decrease in price to be quite persistent," he told reporters at a news conference launching the report.

"We expect some return, some increase, but surely not an increase back to levels where we were, say, six months ago," he added.

The IMF predicts that a slowdown in China will draw a more limited policy response as authorities in Beijing will be more concerned with the risks of rapid credit and investment growth.

Slower 2015 growth in China "reflects the welcome decision by the authorities to take care some of the imbalances which are in place and the desire to reorient the economy towards consumption and away from the real estate sector and shadow banking," Blanchard said.

The IMF also cut projections for Brazil and India.IMF Managing-Director, Christine LagardeIMF Managing-Director, Christine Lagarde

But today's forecasts are far rosier than World Bank predictions last week that the global economy would grow 3% this year and 3.3% in 2016.

Lower oil prices will give central banks in emerging economies leeway to delay raising benchmark interest rates, although "macroeconomic policy space to support growth remains limited," the report said.

Falling prices will also give countries a chance to reform energy subsidies and taxes, the IMF said. The prospects of commodity importers and exporters will further diverge.

Oil exporters can draw on funds they amassed when prices were high and can further allow for substantial depreciation in their currencies to dull the economic shock of plunging prices.

The report is largely in line with remarks by IMF Managing Director Christine Lagarde last week, in which she said falling oil prices and strong US growth were unlikely to make the IMF more upbeat.

The euro zone and Japan could suffer a long period of weak growth and dangerously low inflation, she said.

Both Lagarde and the report indicated that money flowing back to the US as it tightens monetary policy could contribute to volatile financial markets in emerging economies.

The US Federal Reserve is widely expected to begin raising interest rates some time this year.

Here are the IMF's newest growth predictions for selected regions and countries, with the change in percentage points from the IMF's October outlook in parentheses.



New prudential rules for banks and the insurance sector to become EU law

Posted on 12/01/2015

The European Parliament and the Council have given their backing to three new rules designed to bolster the resilience of Europe’s banking and insurance sector.

These delegated acts will help promote high quality securitisation, ensure that banks have sufficient liquid assets in testing circumstances and introduce international comparability to leverage ratios. They will enable the financial sector to support the wider economy without jeopardising financial stability.

EU Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "It is good news for investment in Europe that these new rules have been agreed. They strengthen the resilience of the financial sector but also support efforts to boost jobs, growth and investment. They recognise the diversity of our financial sector as well as the importance of certain financial instruments, especially high quality securitisation. By encouraging safe and transparent securitisation, they will make it more attractive for long-term investments. These first steps on the treatment of high quality securitisations will also be developed further as part of our work to stimulate growth through the development of a Capital Markets Union.”

Solvency II, replaces 14 existing directives commonly known as 'Solvency I'. The regime introduces for the first time a harmonised, sound and robust prudential framework for insurance firms in the EU. It is based on the risk profile of each individual insurance company in order to promote comparability, transparency and competitiveness.

Over its 40 years of existence, the 'Solvency I' regime showed structural weaknesses. It was not risk-sensitive, and a number of key risks, including market, credit and operational risks were either not captured at all in capital requirements or were not properly taken into account in the one-model-fits-all approach.

In terms of implementation costs, the one-off net cost of implementing Solvency II for the whole EU insurance industry has been assessed to be around EUR 3 billion to EUR 4 billion, which is relatively small compared to the annual turnover of the sector (around EUR 1.1 trillion of written premiums).

The Solvency II Directive, along with the Omnibus II Directive that amended it, will have to be transposed by Member States into national law before 31 March 2015. On 1 April 2015, a number of early approval processes will start, such as the approval process for insurers' internal models to calculate their Solvency Capital Requirement. The Solvency II regime will become fully applicable on 1 January 2016.