Eurozone finance ministers met yesterday to discuss a document that calls for a more growth-friendly fiscal policy, a move in which could lead to Germany spending more amid fears of a downturn. With the Eurozone sticking with a “broadly neutral” fiscal policy in its annual recommendations for the past few years, calls from the European Central Bank to spend more and signs of slow-growth states may force the Eurozone to adopt a more aggressive approach in their fiscal policies. The UK followed a similar path recently as it too openly expressed its intentions to increase its fiscal stimulus through a range of new initiatives like the HS2 rail project. The euro will hope that a boost in its fiscal stimulus will bring in more support for the struggling currency.
Eurozone Looks to Increase Public Spending in an Attempt to Boost Support
Yesterday saw the Eurozone’s finance ministers meet to discuss adopting a new strategy concerning their fiscal policies. For many years, the Eurozone has practiced a more “broadly neutral” approach but calls from the ECB and signs of an economic slowdown may force the Eurozone into taking a new step in boosting their fiscal stimulus. Weak growth in Germany last year and fears of a new downturn, fuelled by the coronavirus have played their part in making this decision. Should the ministers agree upon this new method of action, it will have to comply with the EU fiscal rules which mandate deficits below 3% of GDP, among other requirements. It is also not clear how the Eurozone defines a downturn that would trigger such expansionary policies.
GBP Loses Edge Against Euro as No-Deal Brexit Fear Rise on French Foreign Minister’s Comments
The GBP lost footing on the euro yesterday following the comments from the French foreign minister Jean-Yves Le Drain, who stated that the trade talks between the EU and UK will ultimately lead to the two ripping each other to pieces. He did go on to state that this is only natural in any negotiation as each party pushes for their own interests, but this comment was heard loud and clear by the market. Investors once more had a flash reminder of the potential for a no-deal Brexit and the chaos that it could cause for the UK economy – as a result the GBP dwindled.
GBP investors will be keen to observe today’s release of the UK ILO unemployment rate report. Should the rate remain at record-lows, the pound could edge higher and regain its losses against the euro. Tomorrow will also see the UK average earnings report for December, which has been forecast to rise by 3%.
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