Daily Insight
Group Economics Macro & Financial Markets Research
11 November 2015
Political risks in Europe Aline Schuiling
Portugal’s newly appointed minority government ousted …
Senior Economist
… political situation to remain unstable with high risk of fiscal slippage
Tel: +31 20 343 5606
Prime Minister Cameron sets out pillars of UK’s renegotiation of
aline.schuiling@nl.abnamro.com
relationship with EU Nick Kounis Head Macro & Financial Markets Research
Portugal’s newly elected minority government ousted
Tel: +31 20 343 5616
Less than two weeks after it was sworn in, Portugal’s centre-right minority government
nick.kounis@nl.abnamro.com
(holding 107 of the 230 seats in parliament) was ousted yesterday. The recently formed alliance of left-wing parties, which have a combined majority of 122 of the seats in parliament, voted against the new government’s programme, forcing Prime Minister Pedro Passos Coelho to step down. Next, Portugal’s president will probably have to choose between appointing either a left-wing government or a caretaker government until new elections can be held, possibly in the spring of 2016. Political situation to remain unstable for a while, with high risk of fiscal slippage Even if a left-wing majority government were to be appointed, this could very well turn out to be unstable and short-lived. The alliance of the moderate mainstream Socialist Party (the biggest party in the alliance, with 86 seats) and the much more radical Communists and Left Bloc is unprecedented and, historically, the parties have had widely varying programmes. Until recently, the Communists and Left Bloc were aiming for unilateral debt restructuring and euro-exit, but the new left-wing alliance has now dropped these points from its agenda. Meanwhile, the moderate mainstream Socialist Party has supported a number of policy changes that were implemented by the previous centre-right government during Portugal’s EU-IMF support programme. Party leader Antonio Costa has pledged that the new left alliance will stick to the EU’s fiscal rules and that it will prevent the budget deficit from rising to above the 3%-threshold, which seems to be in conflict with some of the points in its policy programme. For instance, it wants to reverse some of the cuts in civil servant salaries, pensions and public services and some of the tax rises that have been implemented in recent years. All in all, policy making will probably be difficult, with a high risk of fiscal slippage. The budget deficit is expected to be close to 3% of GDP this year and in 2016. Combined with ongoing moderate economic recovery, this should result in the government debt ratio falling slightly from 130% GDP in 2014, to 127% in 2016. Given the recent political events it seems more likely that the debt ratio will merely stabilise or even rise this year and next.
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Daily Insight – Political risks in Europe – 11 November 2015
Too close to call - UK public opinion on EU Poll of polls, %
55 50 45 40 35 30 May
Jun
Jul Remain
Aug
Sep
Oct
Leave
Source: Various polls
UK sets out areas for EU reform ahead of referendum British Prime Minister David Cameron sent a letter yesterday setting out the key areas where the UK wants to see EU reform. The letter to Donald Tusk - President of the EU Council - marks the first official step in the renegotiation that the UK government sees as necessary to recommend continued membership of the EU. A referendum of the British public is set to take place by 2017. The letter sets out four strands of reforms the UK wants to achieve. First, in the area of governance, the UK is seeking legally binding principles that protect the rights of non-euro member states within the EU. For instance, any changes the eurozone decides to make, should be voluntary for non-euro EU member states. Second, the UK wants the EU to make 'a clear long-term commitment' to increase competitiveness, for instance by reducing the burden of regulation on businesses. Third, to protect Britain's sovereignty, Mr Cameron wants to end the country's obligation to the EU's goal of 'ever closer union'. In addition, the role of national parliaments should be enhanced. Finally, Britain wants to be able to exert greater control of immigration to the UK from inside the EU. A key proposal to this end is to prevent EU immigrants to the UK obtaining in-work welfare benefits until they have worked and contributed to the system for four years. Renegotiation should succeed, but Brexit referendum outcome uncertain It seems very likely that the UK government has already discussed these proposals behind the scenes in detail with European partners. We doubt that anything would have been included in the letter that would have had a low chance of success. Indeed, the proposals already seemed to receive a constructive first response from German Chancellor Angela Merkel. So it seems more likely than not that the renegotiation will be successful. Still the outcome of the referendum looks highly uncertain. Opinion polls suggest the in and out camps are neck and neck, so the referendum could go either way at this stage.
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Daily Insight – Political risks in Europe – 11 November 2015
Day
Date
Sunday Sunday
08/11/2015 08/11/2015
Monday Monday
09/11/2015 09/11/2015
Tuesday Tuesday
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Oct Oct
-6.9 -18.8
-3.2 -15.2
ABN AMRO
CN CN
Exports - % yoy Imports - % yoy
09:00:00 15:45:00
CH EC
Total Sight Deposits bn ECB announces weekly QE details
10/11/2015 10/11/2015
02:30:00 12:00:00
CN US
CPI - % yoy NFIB small business optimisme - index
Oct Oct
1.3 96.1
1.5 96.2
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
11/11/2015 11/11/2015 11/11/2015 11/11/2015 11/11/2015 11/11/2015 11/11/2015 11/11/2015
15/11/2015 15/11/2015 15/11/2015 06:30:00 06:30:00 06:30:00 10:30:00 10:30:00
CN CN CN CN CN CN GB GB
M2 money growth - % yoy New yuan loans - CNY bn Aggregate financing - CNY bn Fixed investment - % yoy Retail sales - % yoy Industrial production - % yoy Claimant count unemployment rate - % Change in claimant count - thousands
Oct Oct Oct Oct Oct Oct Oct Oct
13.1 1050.0 1302.8 10.3 10.9 5.7 2.3 4.6
13.2 800.0 1000.0 10.2 10.9 5.8 2.3 0.9
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015 12/11/2015
00:50:00 08:00:00 11:00:00 13:00:00 14:30:00 15:30:00 16:00:00
Machinery orders private sector - % mom CPI - % yoy Industrial production - % mom CPI - % yoy Initial jobless claims - thousands Yellen makes welcoming remarks at Fed Policy Conference US Job Openings by Industry Policy rate - % GDP - % yoy Dudley speaks on economy and policy in New York
Sep Oct F Sep Oct Nov 7
-5.7 0.3 -0.5 4.4 276
3.6 0.3 -0.1
-0.3
Sep Nov 12 3Q A
5370 1.5 -4.6
1.5 -4.4
-4.4
18:15:00
JP DE EC IN US US US KR RU US
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015 13/11/2015
00:00:00 05:30:00 06:30:00 07:30:00 08:00:00 11:00:00 14:30:00 14:30:00 14:30:00 16:00:00 16:00:00
US JP NL FR DE EC US US US US US
Fischer speaks on financial stability and monetary policy Industrial production - % mom GDP - % qoq GDP - % qoq GDP - % qoq GDP - % qoq Retail sales - % mom Prod. prices index - % mom Prod. prices index excl food and energy - % mom Business inventories - % mom Univ. of Michigan cons. confidence - index
Sep F 3Q P 3Q P 3Q P 3Q A Oct Oct Oct Sep Nov P
1.0 0.2 0.0 0.4 0.4 0.1 -0.5 -0.3 0.0 90.0
0.3 0.3 0.4 0.2 0.1 0.1 0.0 91.1
467.2b
97.0
0.5 0.4 0.3 0.4 0.2
92.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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