Been out of the financial loop recently? Here are the most important stories in financial Europe from October.
Greece to emerge from recession in 2014
After a six-year recession, Greece has predicted that it will finally emerge from recession next year. The forecast came from the Greek government in a first draft of its 2014 budget, in which it was suggested that there would be growth of 6.9%.
“We foresee the end of recession in 2014,” said vice finance minister Christos Staikouras in a statement.
Greece has twice been bailed out since falling into recession in 2008 and has received 240 billion euros in rescue loans from the troika. In return for lending funds to Athens, the international lenders – the European Central Bank, European Commission, and the International Monetary Fund – have been supervising the country’s economy, overseeing tax rises, cuts, and pension reforms.
The troika will need to approve the 2014 budget before it can be finalised; however, there is a collective optimism surrounding the economy, with tourism and manufacturing looking up and retail sales declining at a slower pace.
European Central Bank is believed to be unveiling new liquidity measures
Three in four economists are predicting that the European Central Bank is to unveil new liquidity measures and believe the move will be ‘non-standard’, Bloomberg reported on October 10.
The new liquidity measures are thought to include long-term refinancing options and the majority of forecasters say that interest rates will remain unchanged until the first half of 2015. The report by the financial news outlet suggests that the ECB is assessing its options for underpinning the euro area’s nascent recovery, with banks still wary of lending. The speculation surrounding long-term loans was furthered by ECB president Mario Draghi’s announcement that the bank is ‘ready to act accordingly and as needed’ to help contain money market rates.
Speaking to Bloomberg, ING Groep NV economist said, “As long as soft indicators improve and hard data follows suit, there is no reason for the ECB to cut rates. A new LTRO could kill several birds with one stone: it could solve possible liquidity bottlenecks, could lower money-market rates, and, above all, would help lock in market expectations.”
In a survey of 43 economists carried out by Bloomberg, it was revealed that 74 per cent said the ECB would unveil new measures. Twenty-five economists also believed that a long-term refinancing option is a probable instrument. In a separate survey consisting of 46 economists, 89 per cent of economists said the ECB interest rate would remain the same.
European banks seek to bolster finances ahead of ECB exams
With the European Central Bank set to go through the accounts of 124 financial institutions in the Euro-regionstarting in November, banks were using October to bolster finances. During a three-step process, the ECB will look to identify problematic loans, review balance sheets, and conduct stress tests, said a report by Bloomberg. In an interview with the financial media company, president of the ECB, Mario Draghi said that examiners would not hesitate in failing banks in its stress tests.
“Banks do need to fail,” he told interviewer Francine Lacqua. Doing so will prove the credibility of the exercise. “If they do have to fail, they have to fail. There’s no question about that.”
In another report by Bloomberg later in the month, it was revealed that the euro had reached a two-year high against the dollar during October and was likely to extend its gains, with lenders encouraged to repatriate assets overseas before ECB examiners delve into accounts.
Cyprus further relaxes financial controls
Towards the end of October, there was further good news for the improving Cypriot economy as the Finance Ministry announcedthat it had scrapped more financial restrictions imposed after the March bailout.
Cyprus’s finance minister said that the government has scrapped a requirement for documentation on domestic business transactions exceeding 300,000 euros, though a bank will still have the power to seek such information if it felt there was a need to.
The finance minister also revealed a prediction that all currency controls related to domestic transactions would be lifted by spring of next year. It was also confirmed that the amount of money travellers could move out of the country has been raised to 3,000 euros from 1,000 euros, and the limit for individual transfers from one bank account to another is now 15,000 euros without approval.
US Criticises German and Chinese Policies
Germany’s economic policies are affecting the Eurozone and the global economy, the US Treasury has said. Speaking in its bi-annual report, released on October 30, the Treasury said that Germany’s export-led growth model is hurting both the Eurozone and the wider global economy.
“Germany’s anaemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment,” said the official government report.
“The net result has been a deflationary bias for the euro area as well as for the world economy.”
Criticism of Germany by the US is rare thing, disapproval of China, however, is rather more commonplace and in the report the Treasury said that the Chinese Yuan continues to be “significantly undervalued.”
The US has long alleged that China keeps the Yuan artificially low in order to provide an advantage to exporters.
This monthly financial review was penned by the writers at Carman Online Content Publishing, a UK-based copywriting agency working out of Fife, in Scotland.