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Week in Review (26 July)


Draghi strengthens ECB commitment to reaching inflation target


Although the market reaction was underwhelming, Draghi gave the ECB’s strongest commitment yet to reaching its 2% inflation target, while adding that the ECB did not have to stop at 2% and could tolerate higher inflation for a period. This has been described in some quarters as the “whatever it takes” moment for inflation.


Given the continued weakness in inflation, and the risks posed to the Eurozone economy by the volatile global situation, we think it highly likely (80% probability) that additional stimulus measures will be adopted in September, which will involve further deposit rate cuts plus a potential relaunch of quantitative easing programme (50% probability) in September.


Not enough votes for Pedro


After two attempts, Spanish Socialist leader Pedro Sánchez failed to secure the necessary support in parliament to be reappointed prime minister. PSOE lay the blame for Sanchez’s failure squarely at the feet of Podemos who they accuse of demanding control over every aspect of revenue collection and public spending. The sharp parliamentary exchanges between the leaders of both parties do not bode well for any future agreement. Under the Spanish constitution, parties have until 23 September to have a government approved by Congress. If this fails, another election will need to take place by 10 November.


European Commission tees up new EU anti-money laundering supervisory body


On Wednesday the European Commission presented a communication suggesting that a new EU anti-money laundering supervisory body will likely be required to tackle shortcomings in AML detection in the Eurozone. However, not everyone is in agreement. CDU MEP Markus Ferber, who is also whip on the European Parliament’s ECON committee for the EPP, dismissed the idea of an EU AML agency on the grounds that it would create duplicated structures.


Boris Johnson takes office to much EU fanfare


Reaction to Boris Johnson becoming Prime Minister among his EU negotiating partners have followed a common theme. Michel Barnier congratulated him and added that the EU27 “are ready also to rework the agreed declaration on a new partnership”. Donald Tusk pointedly congratulated him on his “appointment” as Prime Minster, adding that he looked forward to working discussing their cooperation “in detail”. Emmanuel Macron congratulated Johnson on Tuesday by saying “I will call him once he will be officially PM.”


Brexit Party contests its first ever local election


Although Nigel Farage’s overtures to the Conservative Party for an electoral pact look set to be rejected, the Brexit Party remains a considerable electoral force and should a general election take place before 31 October should be considered as one of four parties capable of winning. Yesterday, the party contested its first ever local elections with candidates running for both Barnwood and Podsmead wards on Gloucester City Council. Both were defeated.


Carige rescue agreed in principle but participants in subordinated debt issue yet to be finalised


The plan to save Carige was agreed in principle this week. As anticipated, €700 million is expected to come from a capital strengthening operation with the other €200 million expected from the issuing of Tier 2 subordinated bonds. Questions remain around the identity of participants in the latter. Credito Sportivo’s board meets today to discuss its involvement and the FTID board will meet again on Tuesday to determine next steps.




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