The ECB echoed calls to the Eurogroup to take tangible action as proof of its commitment to guaranteeing the continuity of the Monetary Union……
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In his address to the European Parliament’s Economic Affairs Committee, the President of the ECB encouraged governments to clarify their vision for the Monetary Union in the years ahead. The only point mentioned explicitly was the “banking union”, to include a centralised supervisory body, a shared deposit insurance scheme and resolution mechanism. A vague mention was also made to the need to limit contagion among member states and to promote a macroeconomic strategy that, combined with fiscal consolidation, can boost growth. How exactly should this encouragement be interpreted? Is this is a necessary condition for monetary authorities to intervene, or is it the ECB’s belief that these steps alone could eliminate the need for the decisive central bank action that many of us consider crucial? To this avail, Draghi hinted at the fact that the ESM could function better than the EFSF. The same topic was touched on by the Governor of the Bank of Italy, Visco, who called for the ESM to be able to directly recapitalise banks and intervene directly on the securities market “with procedures that are more flexible and less penalising for the beneficiary countries”. A few days earlier, the President of the Bundesbank, Weidmann, had also asserted that a crossroads has been reached, and that it is now the time to decide where the Monetary Union is going; specifically: “there is currently a trend towards sharing risks, but no willingness to give up national budget sovereignty to Europe in return”.
All considered, the ECB does not seem about to rapidly implement the shock therapy most of us would like to see it embrace. Rather, it seems to be trying to force the Eurogroup to make the European Stability Mechanism work, and to tangibly prove its long-term commitment to the Monetary Union, therefore providing a political shield for its own choices. These are reasonable requests, also considering that it should be apparent to all that the perception of the risk of the Monetary Union collapsing is destroying, one piece at a time, the single market. Unfortunately, this strategy implies at the very least a month of suffering and tensions: the ratification process of the ESM Treaty is still far from complete, the European Council is due to meet at the end of June, and the procedures established for the functioning of the ESM seem designed more to discourage access than to guarantee success of the assistance operations. In light of the above, it is possible that, willingly or not, the ECB may once again be forced to decide of the Monetary Union’s fate before the political authorities will have clearly indicated that the chosen path is a deepening of the Union.
In the United States labour market data was worse than expected in May. New non-farm payrolls came in at 69k, and the April figure was revised downwards to 77k from 115k: the 3- month average is 96k. Private sector employment increased by 82k; the change in the manufacturing sector was positive again (+12k); the increase in the service sector was 97k (3m average: 100k), whereas the construction sector and other industry suffered contractions of -15k and -28k respectively. The public sector burned 13k jobs, broadly in line with the previous months. The employment data in the household survey (more volatile than the establishment survey) see an rise of +424k after 2 large drops (3m average: 74k). The unemployment rate rose to 8.2% from 8.1% in April, returning to March levels. The workforce grew 642k, after two markedly negative months. Higher participation, by twotenths to 63.8%, explains the rise in the unemployment rate. The augmented unemployment rate, including also workers employed part-time for economic reasons, was up by 3 tenths to 14.8%. Hours worked declined (-0.2% m/m) and hourly wages increased by only 0.1% m/m, 1.7% a/a. The household survey results partly mitigate the very negative indications of the business survey. Weakness in April-May could in part be due to a correction of figures inflated by the favourable weather conditions at the beginning of 2012. However, survey data was undoubtedly weak and indicative of further downside risks to growth. The Fed is vigilant.
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