48%; 52%; 95%!
European Integration has progressed at a minimum of two different and distinct paces since 1992 and the signing of the Maastricht Treaty. Those travelling at the first place, the most advanced threshold of integration within the union, is populated by member states participating in the shared currency, operating under an enhanced set of rules of mutually held sovereignty. The latter pursue only the four freedoms (goods, capital, services and labour) at a more leisurely pace, with many frequently finding this challenging!
Italy’s membership within the former group makes the significance of fiscal irresponsibility all the more worrisome for markets. The set of shared rules that Italy adheres to by virtue of its enhanced commitment to European integration means that the EU Commission has the power to issue negative guidance on their extant budget proposal, forcing the domestic government to reformulate and resubmit its proposal. Should the discord continue further, the Union could even demand a 0.5% of GDP fee from Italy. The substantial pecuniary punishments to Italy are justified upon ground of Union integrity and provided for within Fiscal Compact’s excessive deficit and excessive imbalance procedures under the watchful eye of the Commission. However unlikely the implementation of these sanctions and fines may be, given that the present debate is about 2.4% fiscal spending caps, 0.5% is a whole heap of cash Italy still doesn’t have. If the EU were to enact these procedures to the detriment of Italy, Union stability as well as idiosyncratic Italian risks would soar.
Sterling was undermined yesterday amidst weak European risk sentiment, with investors’ turning instead to the Dollar and later in the day, the Japanese Yen. Despite it still being clear that domestic and European sticking points are focussed around the Irish border, May still claimed yesterday that 95% of the exit plan was agreed; in Brexit, it’s all or nothing! Despite yesterday’s sell off in the Pound, there remained areas of idiosyncratic optimism. Hammond’s budget next week, for example, attracted favourable musings of sustainable yet pragmatic gearings. Given relief from domestic political pressures and Brexit, it is likely that the Pound could surprise to the upside.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Onto June A slew of strong US economic data over recent weeks had boosted expectations for how the culmination of the Fed’s two-day meeting would be presented to the public last night. The story goes back further. The narrative dominant in late-2023 of a US economy in need of restrictive monetary policy was unavoidable. The […]
Germany and the EU The Germany Supply Chain Act came into force in 2023 as a result of Germans wanting to do something good for employees in other countries in particular with respect to human rights and environmental issues. So far so good. But a combination of cost and bureaucracy overlaid with the difficulty of […]
Emergency Stop In the early hours of trading on Monday morning, sudden and significant buying pressure within USDJPY has markets wondering: is this the signal that local authorities are taking another stab at active market intervention? In a critical week for FX, with central bank decisions and a slew of top-level economic data from across […]