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September 2016

UK-EU political and economic discussions continue

Published: Friday 09 September 2016

A flurry of activity for Eurozone economic and policy discussions – with some interesting decisions

It’s a busy time for European economic and policy discussions, with notable implications for both European and currency markets. Markets responded positively to the meeting in London of Donald Tusk, European Council President, and British Prime Minister, Theresa May, on the morning of 9th September, as they discussed the voting outcome of the UK’s European Union (EU) Referendum and the development of plans for Brexit.

Tusk reiterated the significance of the situation and told the UK Prime Minister that matters were in her hands, urging her to take swift action. Tusk is due to meet with representatives from the other 27 EU Member States in Slovakia next week, with the potential consequences of Brexit for the rest of Europe a key agenda point once again.

These important EU talks take place on the same day that European Central Bank (ECB) President, Mario Draghi, announces the central bank’s interest rate decision. In addition, European Parliament (EP) President, Martin Schulz, President of the European Commission, Jean-Claude Juncker and Mario Monti, Chair of the High Level Group on Own Resources, hosted a meeting and press conference of Members of European Parliament (MEPs) and national Members of Parliament from across the 28 Member States yesterday, in order to discuss the future financing of the EU.

ECB: interest rates held at zero

European Central Bank (ECB) President, Mario Draghi, has announced today that the already incredibly low interest rates will once again be held at zero. This decision is already having a profound effect on the markets, with concerns about European equity markets, in particular. European stock markets bore the brunt of this blow as soon as the announcement was made, as markets had hoped for and expected further economic stimulus measures to have been implemented. The Euro has strengthened across the board as a result.
Inflation is currently sitting at 0.2%, but the ECB believes that this will rise in the near future. The central bank has also not provided any guidance on whether their quantitative easing measures designed to stimulate the EU economy will continue after March 2016, although Draghi says he will continue to use whatever measures are needed, and has insisted that existing measures are proving effective, so no further measures are required at this stage.

This comes over a year since the ECB’s economic stimulus measures were put in place in March 2015, an announcement that began to take its toll on currency markets, affecting the Euro’s performance against its key currency partners, Sterling and the US Dollar, and which, ultimately, has been unable to boost the European economy as initially hoped.

Market commentators have bemoaned the fact that, when compared with previous UK and US quantitative easing measures, for example, adequate results and improvement in the Eurozone economy were not achieved. This opinion, unsurprisingly, does not seem to be shared by the ECB president, who commented that there is still resilience in the Eurozone economy, despite the threat of Brexit and ongoing trade uncertainties. Yet there is little indication of which way the central bank will move next.
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