This morning’s economic releases were mildly disappointing for the UK with Consumer Credit falling from £0.4 billion to £-0.4 billion, Sterling Money Supply decreasing by -1.4% in December, Mortgage Approvals remaining stagnant at 53K, and Net Lending rising less than expected to £0.7 billion.
German Retail Sales fell by -0.9% in December but Unemployment figures fell by 34,000 from 6.8% to 6.7% the lowest percentage in 20 years. However Italy’s Unemployment figures have risen to 8.9% the highest since 2004. The overall Unemployment rate for the Eurozone has subsequently remained at 10.4%.
The Pound to Euro Exchange Rate has rallied this morning after initial dips to 1.192, and currently stands at 1.196 (11:52 GMT). Following the World Economic Forum at Davos over the weekend, Angela Merkel led talks between EU leaders in Brussels yesterday. The talks centered on the new fiscal compact which was signed by 25 out of the 27 EU member states, with the UK and Czech Republic the only countries declining to endorse the project.
The fiscal compact features balanced budget legislation that will force annual deficits to be capped at 0.5% of GDP. Failure to keep the books balanced will cause countries to incur a 0.1% of GDP fine, payable to the European Stability Mechanism (ESM) bailout fund.
The ESM is set to come into effect in July, and there will be further considerations as to an increase in its firepower, with an increase in funding on the cards. A new treaty for Stability, Coordination and Governance (SCG) will come into force once it has been approved by at least 12 Eurozone country parliaments.
EU leaders proposed a new drive to stimulate growth – something that was impressed upon them explicitly at Davos – through the creation of new jobs specifically catering for young people. Greece were spared a veritable demon headmaster, as the thought of an external commissioner being brought in to watch over their budget decisions was deemed undemocratic by French President Nicolas Sarkozy: “The recovery process in Greece can only be enacted by the Greeks themselves.”
The new fiscal pact appears to be a step in the right direction, but if you scratch below the surface there is nothing to suggest that it has the capability to inspire the sufficient growth needed – the growth that was called upon at Davos – to resurrect the 17-nation bloc from its current descent into contraction. German Austerity has once again prevailed over decisive action.