European Union pushes for eurozone budget funding plan
EU finance ministers must sort out the sources of financing for a future eurozone budget as a matter of priority, EU leaders told their finance ministers yesterday, but remained vague on the idea of a European deposit insurance scheme (Edis).
The chairman of eurozone finance ministers, Mario Centeno, briefed the leaders on what ministers have achieved since they were asked last December to work on creating a eurozone budget along with other reforms, including Edis.
“We ask the eurogroup to report back swiftly on the appropriate solutions for financing,” the leaders said in the statement about the eurozone budget, called Budgetary Instrument for Competitiveness and Convergence (Bicc).
“These elements should be agreed as a matter of priority so as to be able to set the size of the Bicc in the context of the next multi-annual financial framework,” they said, referring to the wider EU’s next long-term budget.
But the leaders avoided a direct reference to Edis, a scheme stalled for years because of strong opposition from Germany. The statement said only that “we look forward to the continuation of the technical work on the further strengthening of the Banking Union” — EU code for the deposit guarantee scheme — in a sign there was no deadline for the discussions.
Meanwhile, eurozone business activity picked up a touch this month, but firms were at their least optimistic in nearly five years as they worried about slowing global growth and the impact of trade wars, a survey showed.
The downbeat showing comes just days after ECB president Mario Draghi signalled one of the biggest policy reversals of his eight-year tenure by saying the bank would ease policy again if inflation failed to accelerate.
Despite years of ultra-loose monetary policy, prices have failed to rise as fast as the ECB wants, while a slew of recent data have suggested growth is slowing. IHS Markit’s flash composite Purchasing Managers’ Index (PMI), considered a good guide to economic health, only nudged up to 52.1 this month from a final May reading of 51.8.
“It is nice it’s moving in the right direction, but you are only looking at GDP growth just over the 0.2% level. And that growth is unbalanced — manufacturing is still in a downturn and we are reliant on the service sector,” said Chris Williamson, chief business economist at IHS Markit.
Firms in the bloc’s dominant service industry staged a modest upturn, with that PMI rising to 53.4 from May’s 52.9, ahead of expectations for no change. But manufacturing activity contracted for a fifth month. The factory PMI held well below the 50-point mark separating growth from contraction, registering 47.8 compared to last month’s 47.7 figure.
Demand declined for a ninth month and, as they have since September, factories were running down backlogs of work to stay active. As demand also remained weak for services, firms in that area barely increased headcount this month, with forward-looking indicators painting a downbeat picture.
“There are a lot of concerns — the weak state of the economy, both domestic and global; trade wars; weaker global demand conditions, as well as rising geopolitical risks,” Mr Williamson said.
