Latest news with #eurozone
Zawya
an hour ago
- Business
- Zawya
Euro area yields drop, Italian spread set for biggest weekly rise since June 2024
Euro zone government bond yields were on track for a weekly decline as the Israel-Iran air war entered its eighth day, with investors downplaying inflation concerns while awaiting clarity on potential U.S. involvement in the conflict. President Donald Trump will decide on Iran in the next two weeks, while Germany and its European partners are open to further discussions. German 10-year government bond yields, which serve as the benchmark for the wider euro zone, fell 0.5 basis points (bps) to 2.51% and were set to end the week 2.5 bps lower. Several analysts expect a relatively tight trading range for Bunds, barring any fresh shocks, while noting that the current rise in oil prices is insufficient to boost inflation. "The bearish risks to (euro area) core rates are relatively tame, in our view. The German fiscal U-turn is likely to have a persistent impact on long-term forwards, but that is already well priced," said Jamie Searle, strategist at Citi, arguing he is neutral on Bunds at 2.5% with a preference to buy the dips. Germany announced in early March a massive increase in fiscal spending to fund infrastructure and defence investments. "On the bullish side, it feels like the market may have become complacent on tariff risk once again," Citi's Searle added, also mentioning possible support is the potential for reallocation to euro from the U.S. dollar with Bunds a likely beneficiary as the safest asset. Money markets priced in a European Central Bank deposit facility rate at 1.77% in December from 1.75% last week. It priced a depo rate at around 1.6% in early April when concerns about the economic impact of U.S. tariffs led investors to discount a dovish response from the ECB. "I believe there is a growing recognition that the European Union can play a larger role, especially if it develops a more comprehensive fiscal union rather than just a monetary union," said Kristina Hooper, chief market strategist at Man Group. "There will be a willingness among investors to shift at least somewhat to euro-area bonds, primarily German bunds." The yield on German 2-year bonds – more sensitive to expectations for the ECB policy rates -- was flat at 1.84%. A decline in risk appetite widened the yield spreads between government bonds of highly indebted countries—such as Italy and France—and safe-haven German Bunds. Italy's 10-year yields dropped 0.5 bps to 3.54%. The Italian yield gap versus Bunds — a market gauge of the risk premium investors demand to hold Italian debt — was at 102.5 bps on Friday but was still set to end the week 10.8 bps wider, the largest increase since June 2024. The French yield gap was set for the third straight weekly rise and was last 73.50 bps, after hitting early in the session 75.30 bps, its highest since April 23. In France, the business climate index for June was at 96, below the long-term average and consensus expectations. (Reporting by Stefano Rebaudo, Editing by Andrew Cawthorne)
Wall Street Journal
4 hours ago
- Business
- Wall Street Journal
Almost a Third of Eurozone's U.S. Trade Surplus Is Due to U.S. Firms, Says ECB
Almost a third of the eurozone's goods trade surplus with the U.S. is accounted for by sales of products manufactured by the affiliates of American businesses, which also account for most of the eurozone's deficit in the trade in services, the European Central Bank said Friday. In its latest Economic Bulletin, economists at the central bank said that should the activities carried out by those affiliates be moved back to the U.S. in response to higher tariffs or changes to U.S. tax policy, the eurozone economy would be smaller, but the impact on employment and incomes would likely be limited.
Reuters
17 hours ago
- Business
- Reuters
Euro zone finance ministers recommend Bulgaria adopt euro in 2026
BRUSSELS, June 19 (Reuters) - Euro zone finance ministers recommended on Thursday that Bulgaria become the 21st member of the euro zone starting January 1, 2026, backing earlier positive assessments of the country's readiness from the European Commission and the European Central Bank. "The Eurogroup agreed today that Bulgaria fulfils all the necessary conditions to adopt the euro," Paschal Donohoe, who chairs meetings of euro zone finance ministers, told a press conference. The recommendation will now be formally adopted by all 27 EU finance ministers on Friday and then by EU leaders on June 26. The exchange rate at which the Bulgarian lev will be converted into euro will be set by EU finance ministers at their meeting in early July, giving Bulgaria six months to prepare the technical transition for the start of the year. Bulgaria has been striving to switch its lev to the euro since it joined the European Union in 2007. But after such a long wait, many Bulgarians have lost their initial enthusiasm, with 50% now sceptical about the euro, according to a Eurobarometer poll in May. Some Bulgarians fear the currency switch will drive up prices. To get the positive recommendation, Bulgaria had to meet the inflation criterion, which says that the euro candidate cannot have consumer inflation higher than 1.5 percentage points above the three best EU performers. In April, the best performers were France with 0.9%, Cyprus with 1.4% and Denmark with 1.5%, which put Bulgaria with its 2.8% just within the limit. The euro candidate country also cannot be under the EU's disciplinary budget procedure for running a deficit in excess of 3% of GDP. Bulgaria meets this criterion with a budget deficit of 3% in 2024 and 2.8% expected in 2025. The country's public debt of 24.1% of GDP in 2024 and 25.1% expected in 2025 is well below the maximum level of 60%, and its long-term interest rate on bonds is well within the two-percentage-point margin above the rate at which the three best inflation performers borrow. Finally, Bulgaria had to prove it had a stable exchange rate by staying within a 15% margin on either side of a central parity rate in the Exchange Rate Mechanism II. This was easily done because Bulgaria has been running a currency board that fixed the lev to the euro at 1.95583 since the start of the euro currency in 1999. Bulgaria's euro adoption will come three years after the last euro zone expansion, when Croatia joined the single currency grouping at the start of 2023. The accession of Bulgaria into the euro zone will leave only six of the 27 EU countries outside the single currency area: Sweden, Poland, Czech Republic, Hungary, Romania and Denmark. None of them have any immediate plans to adopt the euro either for political reasons or because they do not meet the required economic criteria.
Yahoo
17 hours ago
- Business
- Yahoo
Eurozone finance ministers give green light for Bulgaria to use euro
Eurozone countries on Thursday gave Bulgaria the green light to use the euro, with Sofia set to introduce the common currency in January 2026. Bulgaria is set to become the 21st EU member state to use the euro after finance ministers of eurozone countries gave their approval to the European Commission and the European Central Bank (ECB). The commission backed the move earlier this month, concluding that Bulgaria fulfils the necessary requirements to join the monetary union. The criteria for joining include price stability, sound public finances and stable exchange rates. Bulgaria has been a member of the EU since 2007 and had previously planned to replace its national currency, the lev, with the euro in 2024, but the adoption was postponed due to a comparatively high inflation rate of 9.5% at the time. The commission recently said it expects an inflation rate of 3.6% for Bulgaria in the current year and 1.8% in 2026. In Bulgaria, the possible introduction of the euro has been accompanied by fierce protests. According to an opinion poll conducted by the Bulgarian Mjara institute in May, more than half of adults (54.9%) are against the introduction of the euro in 2026, while 34.4% are in favour of joining. The next step is for the finance ministers of all EU countries to approve the plans before EU leaders discuss Bulgaria's accession to the eurozone at the end of June. Finally, after consulting the European Parliament and the ECB, the member states must adopt the necessary legal acts at finance minister level.
Euronews
18 hours ago
- Business
- Euronews
IMF chief: European lifestyle is at risk if productivity isn't boosted
Europe needs to boost its growth in the face of global headwinds or risk losing its way of life, said the head of the International Monetary Fund Kristalina Georgieva on Wednesday. 'I don't want Europe to become the United States of America, but I want the productivity and functionality of Europe to go up,' she told Euronews. 'In Europe we enjoy being a lifestyle superpower. Unless we become more productive we may lose this advantage,' she added. Georgieva was speaking ahead of the publication of a new IMF statement on Thursday, which offers economic suggestions to eurozone nations. One key message is that Europe must speed up progress on the single market, which ensures the free movement of goods, services, capital and people between single market nations. 'There are no tariffs within Europe, but it doesn't mean there are no barriers in Europe, regulatory and otherwise,' Georgieva told Euronews. The IMF estimates that barriers to free movement in the single market are equivalent to a 44% tariff on goods and a 110% tariff on services. Georgieva noted that in the US, what is produced in one state is split 30-70, meaning 30% is consumed in that state and 70% is sent to other states. In Europe, on the other hand, 70% of production is consumed domestically while 30% is sent abroad. This is a set-up that limits growth by keeping markets smaller and less competitive. 'If Europe completes the single market, over 10 years, it would boost GDP by 3%,' said Georgieva. Means to advance progress on this front include lowering regulatory fragmentation, supporting labour mobility, facilitating cross-border banking mergers, integrating the energy market, and making progress on the capital markets union (CMU) — said the IMF. The CMU aims to allow investment and savings to flow seamlessly across member states. This would make it easier for businesses in one EU state to source funding from another EU state, supporting firms to grow and create jobs. In terms of deepening capital markets, the IMF's statement added that the EU should 'increase institutional investors' familitary with venture capital as an asset class and address remaining undue restrictions on their ability to invest in it'. Looking ahead, the IMF expects eurozone growth at a moderate 0.8% in 2025, picking up to 1.2% in 2026. Trade and geopolitical tensions are expected to dampen sentiment and weigh on investment and consumption. With regards to interest rates, the IMF argued that 'a monetary policy stance close to neutral is justified' as headline inflation nears the ECB's 2% target. When balancing spending pressures with fiscal sustainability, the IMF recommended that countries with strong public finances support countries with less room for manoeuvre. 'It is crucial that care be taken in implementing the EU fiscal rules to ensure that countries with low fiscal risks that intend to increase spending to boost potential growth and enhance resilience should not be constrained from doing so by the rules,' said Thursday's statement. As widely anticipated, the Bank of England (BoE) decided to keep its benchmark rate at a 2-year low of 4.25% on Thursday. This comes as fears grow that the conflict between Israel and Iran will escalate and that US tariffs will further fuel inflation. Six out of the nine-member panel of the monetary policy committee voted to hold, while three of them saw fit to cut. The bank lowered its rate to 4.25% in May, the fourth cut after an aggressive tightening period in 2022-2023. More cuts are still expected in the coming months by the market. The central bank's benchmark interest rate determines how banks change their rates on savings and loans. UK inflation, the primary figure driving the monetary policy committee's decisions, came in at 3.4% on Wednesday, far above the BoE's 2% target. Price increases, however, slowed slightly compared to the annual price change measured in April, which stood at 3.5%. The prevailing view at the bank was that inflation would remain elevated over the coming months but start to slow towards next year. But an uptick in oil prices, due to the current geopolitical crisis between Israel and Iran, could change this, as energy prices translate into the costs of producing and transporting all other goods. 'The risk to energy prices has clearly intensified and moved up the agenda given developments in the Middle East,' Sandra Horsfield, an economist for Investec, told AP. Uncertainty over the level of tariffs US President Donald Trump will impose around the world is also clouding the outlook for prices across the globe. 'We are still awaiting the full impact of Donald Trump's tariffs to show up in the prices of goods. We are approaching the end of the 90-day pause on reciprocal tariffs, and what happens from there is really anyone's guess,' Lindsay James, investment strategist at Quilter said. She added that even with the US-UK trade deal, the raft of tariffs on other nations would likely be felt in some form in the UK too. This will especially be the case if the UK's biggest trading partner Europe leaves the table with no agreement. While setting their focus on inflationary risks, the BoE also need to consider that growth in the UK economy is slow and could benefit from lower interest rates. In April, economic output sank by 0.3%, due to falling exports to the US and higher costs for businesses, including a tax raise. "The expectation is the UK economy will stagnate again in the second half, making the need for rate cuts more prominent," James said. "But with risks on the global stage not only uncertain but also substantial, the mantra of rates being 'higher for longer' will continue.'
