The mediocre growth of the third quarter in the euro zone puts the Nineteen in a delicate situation. The weak 0.2% advance puts an end to the time when Europe could leave the autopilot. The risks have been accumulating. The principal will be sitting at the Eurogroup table tomorrow: it's called Italy. The battle with Rome, along with the negotiations of the Brexit or the new measures that can be adopted on Greece, should be handled with care by the countries of the single currency to avoid any skid in the middle of the process of withdrawal of stimuli by the Central Bank European.
The improvement of the French economy and the endurance of the Spanish in the third quarter put the focus on two countries: Germany and Italy. Analysts believe that the lukewarm economic progress of the euro zone states has to do with the drop in car sales in Germany -That in September was 30%, according to the employers of the sector- for the new emission standard, which supposed that purchases were advanced.
This may mean that in the last quarter of the year there is some kind of rebound, although from Oxford Economics point to another data that points to the German slowdown: retail sales fell by 1% in the third quarter, the worst record since 2009. The Definitive data of growth is not the only question that comes from Berlin. Chancellor's announcement Angela Merkel that in 2021 she will not repeat as a candidate It also opens some concern about the weakness in which his government is left every time there are elections. And all this in a context of instability in the financial markets and commercial battles on both sides of the continent.
The Finance Ministers of the Nineteen will sit, then, tomorrow in front of a portfolio full of dossiers. In the agenda there are, among other points, the revision of the stress tests of the bank, the budget drafts that the countries have given to the European Commission and, already in the Ecofin, an evaluation to the application of the Pact of Stability and Growth . In silver: Italy.
The economic anemia of the country governed by the coalition of M5S and Lega was confirmed this week with a stunted growth of 0.02%. In addition, Italy was, according to Eurostat, the only EU country whose labor market deteriorated in September. "With these data, the Gross Domestic Product (GDP) of Italy is 5% below the levels of the first quarter of 2008, and since then the gap with the whole of the euro zone has increased by 13.4% ", Remembers the economist and ex-secretary of the Italian Treasury Lorenzo Codogno.
The Italian government seizes on these data to justify its fiscal expansion plan, which means breaking with the commitments made with Brussels. The European Commission, however, has already put in place by means of a first warning the gear to put in the corrective arm and, if necessary, apply sanctions for breaking the community rules. The poor economic outlook for the country and the increase in interest rates can lead to a snowball debt – equivalent to 131.8% of GDP – that continues to grow heavier.
Convinced that a bitter confrontation would only fatten the populist government, the countries of the euro zone have decided to put aside the big fuss and close ranks with the European Commission. Holland has also done so, leading a leader in a league of eight Nordic countries that fly the flag of fiscal responsibility of the countries. Wopke Hoekstra, his finance minister, has insisted that "all budget projects must comply with the requirements of the Stability and Growth Pact" and has supported the Brussels position. But there is no north-south divide. Spain agrees with the flexibility, but always within the rules, according to sources from the Ministry of Economy.
Punishment of the markets
In that position is also Germany, which until now eludes a battle like the one that it carried out with Greece. The countries also seem to agree on waiting for the markets to make Italy's plans impossible. In the last 15 days, the risk premium of Italian debt has been around 300 basis points and has reached 330. Its Finance Minister, Giovanni Tria, admitted that the Government would be forced to intervene if it reaches 400 points. Recently, it lowered that bar: if the current prices are maintained, the banking system – which accumulated 370,000 million euros in sovereign debt in the first semester – will be in trouble. And even more without the ECB mesh.
Peterson Institute economists Olivier Blanchard and Jeromin Zettelmeyer this week published a document in which they considered that the escalation of the debt may occur even before the Italian government can apply its fiscal policy. If the risk premium manages to stay at those levels, they warned, the "challenge" is another: facing greater slackness in its economy.
The worsening situation also puts the ECB at a disadvantage. Despite noting the weakness of the data that is coming, Mario Draghi has decided to continue with the withdrawal of stimuli. From Capital Economics they see it unlikely that these data make rethink the end to the asset purchase program in December, which has already injected more than 2.5 billion euros into the economy. They do believe they could play with the moment when interest rates begin to rise, which they believe could be in September 2019. Time for a Europe that goes into electoral time to straighten its course or continue accumulating folders that scare the increase.
The Italian crisis uncovers new shortcomings of the Banking Union. They are not ready, for example, the precautionary funds to which countries that could be infected by the situation in that country could be eligible. On the contrary, the challenge of the government of Giuseppe Conte fears the countries most determined by the reform of the euro that Italy will charge arguments to those who, before continuing with integration, ask for less risk and more fiscal discipline.
Before the Eurogroup, the so-called 'Hanseatic League' – made up of eight Nordic countries, including Holland and Ireland – has drawn up a document that is also signed by the Czech Republic and Slovakia so that the rescue fund (MEDE) has greater control of the national accounts. In particular, he asks for "full access to information on the economic and financial situation" at all times and reminds that financial assistance must always be carried out with "strict conditionality". The hawks of the north try to counterbalance the Franco-German axis and stop the plans for greater economic integration of Emmanuel Macron.