EUROPE'S PULSE-A daily note from our Economics Editor
May 31 (Reuters) - Euro zone unemployment figures will emphasize just how far the currency bloc is from recovery while inflation data due at the same time could push the European Central Bank closer to new action. If price pressures drop further below the target of close to but below two percent we're moving into territory where the ECB has a clear mandate to act, although the consensus forecast is for the rate to push up to 1.4 percent, from 1.2 in April.
Market attention is focused on the ECB cutting its deposit rate - the rate banks get for parking funds at the ECB - into negative territory to try and get them to lend. But will that do much?
Despite being in a world awash with central bank money, the fact safe haven bond markets such as Bunds and U.S. Treasuries haven't sold off much - and are now starting to climb after Ben Bernanke's hint that the Federal Reserve could soon start slowing its money-printing programme -- denotes ongoing nervousness among banks and investors. Data this week showed bank loans to the euro zone's private sector contracted for the 12th month in a row in April.
Despite the (now waning?) European market euphoria - started by the ECB's pledge to do whatever it takes to save the euro and given a further shot in the arm by Japan's dash for growth - the economic numbers look grim. Euro zone unemployment is forecast to edge up to 12.2 percent of the workforce.
Last night, official data showed French unemployment hit a new record. Consumer spending, just out, dropped 0.3 percent in April.
Germany is in better shape but even it will barely eke out any growth this year. Retail sales posted a 0.4 percent fall in April. Britain, however, could just be starting to turn a corner. It skirted a return to recession in the first quarter and the Bank of England has signalled modestly better times ahead. The UK GfK consumer confidence hit a six-month high in May, while the British Chambers of Commerce revised up its growth forecasts for the first time since the financial crisis.
French President Francois Hollande takes to the television airwaves this afternoon, a day after he met Germany's Angela Merkel, a meeting which laid bare Berlin's alarm at the sluggish pace of French reform and the Elysee's irritation at Brussels telling it what to do - not on the face of it a recipe for smooth progress.
Hollande pledged to meet his target of balancing the structural budget in 2017 but said it was up to him, not the Commission, how to get there. Merkel said the two extra years Paris has been given to meet its debt-cutting target had to go "hand in hand" with structural change. In France's case, that means relaxing labour laws and overhauling the pensions system first and foremost. Back in Berlin, some of Merkel's acolytes were much more blunt about perceived French shortcomings.
Where the two leaders did agree was on the need for a full-time president of the euro zone finance ministers' forum and more frequent summits to coordinate economic policy, as well as the need to shell out 6 billion euros in EU funds to fight youth unemployment. That will feed into next month's EU summit. The thrust for greater integration is alive and well but not necessarily in crucial areas such as banking union of which there was barely a mention.
Italy was taken off the EU's debt warning list this week but will need more slack than that if tax cuts being argued over within a fractious coalition government are to be delivered. EU Council President Herman Van Rompuy meets President Giorgio Napolitano and Prime Minister Enrico Letta in Rome later. The Commission forecasts Italy's budget deficit at 2.9 percent of GDP this year, just a fraction below the 3 percent ceiling, offering no room for manoeuvre unless rules are changed to allow Rome to exclude some new spending from its deficit calculations.
Greek sentiment appears to be picking up but the bald numbers suggest it is unlikely to get back on its feet without a further debt writedown at some point, which this time will mean a hit for fellow euro zone governments (i.e. taxpayers). Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers, is due in Athens for talks with the finance minister and Prime Minister Antonis Samaras.
German Bund futures have edged up at the open. European stock futures are pretty flat. Nine days on, Bernanke's QE comment continues to cast a pall. Since then, peripheral euro zone bond yields have started creeping up and the index of top European shares has shed about 2.5 percent.
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