Monday, 30 April 2012

America has its own ‘growth pact’ - it’s called the Fed!

Pressure to respond to fiscal austerity with a ‘growth pact’ for the eurozone is building. Not a bad idea if it doesn’t compromise the substance of the fiscal compact. As for what would constitute a growth pact, this might take time to gel. Meanwhile, Spain along with Italy and the Netherlands, not to mention Greece, is in recession.

Europe, including the UK, faces the headwinds of fiscal austerity and stiffer banking regulation but the Eurozone faces one other difficulty. This is a central bank committed to its single mandate of price stability and committed to the view that price stability is the greatest contribution it can make to economic growth.

Not only is this the mindset that the aspirant leaders, Monsieur Hollande and Mr Samaras, confront but as discussed in a recent note, not all political leaders want to see the fiscal compact picked apart to accommodate measures aimed at growth. Mrs Merkel for one can now point to the Dutch, which wants growth as much as any eurozone member, but whose Finance Minister managed to secure late last week support for budget cuts that might get through parliament and secure budget deficit targets. More >

Mike Lenhoff
Chief Strategist

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