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Eurozone Currrent Account Rises

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Eurozone Currrent Account Rises

The European Central Bank (ECB) has released the March Current Account figures for the Eurozone. Non Seasonally Adjusted this figure has risen to €20.9Bn from €13.9Bn in February, market expectations were for a surplus of €20.0Bn. The Seasonally Adjusted version is however lower at €18.8Bn compared to February’s €21.9Bn and the consensus estimate of €23.0Bn.

The Governing Council of the ECB is preparing to meet on June 5th to discuss the next steps in providing monetary stimulus to the Eurozone economy. On the table are across the board rate cuts, including taking the Bank’s benchmark Refinance Rate nearer to 0% and the Overnight Deposit Rate into negative territory. Quantitative easing has not been entirely ruled out at this stage but it is likely to prove politically challenging and so the ECB will most likely opt for the simpler rate cut option.

There is a lack of clarity as to how exactly the ECB would operate a quantitative easing program. There is a clause that enables the ECB activate a mechanism called the Outright Monetary Transactions (OMT) plan for a Europe wide bond buying program. Germany has already expressed it’s concerns around quantitative easing, the OMT has been under a high level EU tribunal review since Germany’s constitutional court expressed some doubt on the legality of the plan last February.

As it stands any possible quantitative easing program by the ECB would have to be operated as ‘aid’ via the European Stability Fund (ESF), the Governing Council of the ESF consists of member state Finance Ministers and unanimity must be achieved in order to provide aid to individual economies. Again Germany is likely to stand in the way. The German Finance Minister, Wolfgang Schaeuble, cast doubt on how his Government would vote in the event that the ESF was to attempt to purchase member state bonds. The sticking point appears to be that Germany is unwilling to purchase bonds directly from member states in the primary market, however the only mechanism available to the ESF would be primary market purchases under the guise of ‘aid’.

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