Fiscal splurge may arrive too late in Europe, say economists

Europe’s strongest member states are on the verge of embarking on a growth-boosting fiscal splurge, but leading economists in the region fear that any action will be too little and too late to avert a recession in the bloc

  • By Elliot Wilson, Tyler Davies
  • 18 Oct 2019
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Calls for the EU’s biggest surplus-generating member states to unleash a fiscal stimulus to boost growth while interest rates have fallen into negative territory have reached fever pitch as policymakers and bankers gather in Washington this week.

But leading economists are warning that Europe’s governments have failed to act quickly enough in the face of an economic slowdown.

Angel Ubide, head of economic research at investor Citadel, said yesterday that the lack of fiscal stimulus was making monetary policy “very difficult”. “We are in ia situation where inflation is too low, growth is too low, and so what you need to have is an expansionary fiscal policy,” he said.

The IMF slashed its estimates for growth in the eurozone earlier this week, with Germany, the engine of the bloc, faltering. The next batch of GDP data, released in November, is expected to show that Germany slipped into a technical recession in the third quarter of 2019.

“The ECB has been calling for pre-emptive action to avoid recession,” Anatoli Annenkov, a senior European economist at Société Générale, told GlobalMarkets.  “But we have seen from the German politicians that they are not going to be reactive. It feels like things need to get an awful lot worse before we get to that kind of reaction.”

Elwin de Groot, chief international economist at Rabobank, said that member states were slowly starting to take note, pointing out that the Dutch government was positioning itself to deliver a modicum of fiscal stimulus through its latest budget.

Lagarde takes over

When she takes over as president of the European Central Bank next month, Christine Lagarde is expected to lean on political levers to influence growth in the eurozone.

“[The ECB’s] mandate will shift to being more proactive on fiscal policies, and on working more proactively with eurozone governments,” said Paul Sheard, a senior fellow at the Mossavar-Rahmani centre for business development at Harvard Kennedy School.

But some experts warned that a spending splurge might not be enough on its own to give the eurozone an economic boost. “There is an issue of fiscal capacity in many member states,” said Debora Revoltella, a director in the economics department at the European Investment Bank. “Some countries have fiscal capacity, others lack it.”

She told GlobalMarkets that Europe could become more dynamic by carving out certain types of investment from government expenditure. “You can do two things: you can have fiscal stimulus and a bigger deficit, or you can keep your debt and change the composition of your expenditures,” Revoltella said.

“I think many countries should think about rebalancing their expenditures. This should be the driver of policy, to tackle investment needs in innovation, digitalisation, smart infrastructure and other areas of innovation.”

  • By Elliot Wilson, Tyler Davies
  • 18 Oct 2019

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
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1 JPMorgan 155.59 517 10.21%
2 BofA Securities 128.52 426 8.43%
3 Citi 112.88 406 7.41%
4 Goldman Sachs 90.28 263 5.92%
5 Barclays 78.54 312 5.15%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $bn No of issues Share %
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1 Deutsche Bank 8.33 35 7.21%
2 UniCredit 7.05 32 6.10%
3 BofA Securities 7.00 27 6.06%
4 BNP Paribas 5.58 37 4.83%
5 Citi 5.31 23 4.60%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
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1 Credit Suisse 3.10 7 10.46%
2 Morgan Stanley 2.55 14 8.61%
3 JPMorgan 2.53 18 8.54%
4 Goldman Sachs 2.43 15 8.19%
5 Citi 2.07 16 6.98%