13 June 2016

The Week in review

With the upcoming Referendum, one topic of discussion that we can’t seem to get away from is the European Union.

by James Godrich

Fund Manager


One topic though that continues to bubble away is of growing concern around the success, or lack thereof, of the Eurozone – the European Monetary Union of which the UK is not a part.

Last week saw the German Trade figures; the March figures released last month showed a huge growth in the German Current Account surplus with imports declining by 2.3% and exports growing by 1.9%. This month was expected to show a small reversal with imports growing and exports falling; it didn’t.

Concern remains over Eurozone economies which are growing at different speeds but being stimulated by a one size fits all monetary policy, as set by Mario Draghi and the ECB. If we look a little further at the German example we currently have a German inflation figure of 0.1% against a Eurozone -0.1% and Eurozone unemployment figure of 10.2% against German unemployment of 6.1%.

The growth this week of the German Trade surplus to €24bn represents a further concern for the monetary union. It has the effect of exporting deflation, hindering growth across the continent and ultimately limiting the effectiveness of Draghi’s monetary bazookas.

These worries look to be coming towards the surface, as last week the FT reported Commerzbank locking up spare cash in vaults rather than with the ECB, whilst Deutsche Bank produced a research paper entitled, “The ECB must change course.” It appears that with growing concern over Euroz one monetary policy, Europe has more to worry about than just the UK Referendum.

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