The Euro Conundrum: Voting and ECB
Between ECB, the Italian referendum and looming elections in several prominent EU member states, the Euro-zone is going to be a real battleground in terms of policies and prices of assets – and binary options traders are interested in both. On one hand, we have an ever-increasing pressure for further economic growth, requiring special policies to be enacted, but on the other we face inability from ECB to make a decisive financial policy.
Is ECB cornered?
The European Central Bank simply does not have enough manoeuvring space for any further monetary easing – not that they are willing to start anything with the political landscape that is about to change. The main question is not if new fiscal policies are needed or not – it is all about how and when to implement them.
The Italian job
On Monday, Italian Prime Minister Matteo Renzi was called upon to decide on the date for a referendum on reforms in his own country, and the most probable dates were November 27th and December 4th. He opted for the latter, so in December the Italians will have to vote about the reform package that will see their Senate decrease in both its size and influence. In other words, if passed, these reforms would decrease the number of seats in the Italian Senate as well as limit its authorities – a dangerous political move to be sure.
On earlier occasion, Renzi has announced that he might resign if his side lost the popular support in the referendum. He has since scaled down in his public speeches on the issue, but the fact remains that if he lost the vote, this setback would likely trigger another general election in Italy. Not only would this bring back the chaos that the country nearly averted the last time around, but it would also make things far more difficult this time around, with investors confidence decreasing almost as fast as the outlook on the Euro-zone as a whole.
On the other hand, if Renzi won, this would obviously strengthen his position in Italy, but it would also give more credence to his public outbursts at Angela Merkel over economic policy of the Euro-zone. In his earlier speeches, Renzi was a fierce critic of Germany’s “obsession with austerity” which apparently only benefitted one side. Coincidentally or not, that side was Germany itself, considering it still holds the dominance over the export markets. His stance on migration has also been incompatible with Chancellor Merkel’s, so much so that he actually refused to join in a news conference after the informal summit in Bratislava. As December closes, we will likely hear a lot more from Mr. Renzi on this and other issues.
Merkel on the ropes, ECB takes the lead
As commendable as it may seem, Renzi’s opposition to Merkel has been made a lot easier by her own apparent political downfall, triggered by the migrant crisis as well as Brexit and other factors. Her position gave her a lot of authority, but also assigned a lot of responsibility for the results or lack thereof. And now that she and her party are losing election after election in Germany, and with Federal elections just around the corner in 2017, Renzi’s criticism on Merkel does not exactly make him stand out from the crowd – just the opposite, in fact. What this means for the rest of the Euro-zone is a golden opportunity to throw away austerity measures and their shackles, now that Merkel has no means or strength to do anything about it.
The ECB, from its part, seeks to keep pressure on politicians and is therefore unwilling to agree to further easing. In fact, now that most politicians in the EU have no power, time or energy to stop them, it may be a perfect opportunity to take a more pro-active stance. The pending instability means that bond-buying programme the ECB has put in place until next March will likely have to be extended even further.
The closer the elections get, the old austerity measures will only be more difficult to defend in front of the voters. The crisis that might ensue will likely affect bond and equity markets, especially if the fiscal policy changes. The Euro is going to be extremely volatile, so both binary options and forex traders will have their hands full.