Following the extension to the Brexit deadline, the European Commission urged companies to ‘take advantage of the extra time” to make their preparations, warning that a “no deal” scenario remains “very much … a possible, although undesirable outcome”. The European Central Bank indicated that policymakers are considering further monetary stimulus measures.
- German business sentiment continued to deteriorate
- The EC reiterated that the Withdrawal Agreement is not open to renegotiation
- Italy’s debt levels continued to cause concern in Brussels
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Following the extension to the Brexit deadline, the European Commission (EC) urged companies to ‘take advantage of the extra time” to make their preparations, warning that a “no deal” scenario remains “very much … a possible, although undesirable outcome”, and reiterating that no deal means no transition period. European Council President Donald Tusk reminded the UK that the EU remains ready to discuss the Political Declaration, but the Withdrawal Agreement is not open to renegotiation.
“No deal means no transition period”
Business sentiment in Germany continued to deteriorate in June according to the IFO Institute’s Business Climate Index. The Index reached its lowest level since November 2014, and IFO warned that “the Germany economy is heading for the doldrums”. The Dax Index rose by 5.7% during June, while the CAC 40 Index climbed by 6.4%.
European Central Bank (ECB) President Mario Draghi indicated that ECB policymakers are considering further monetary stimulus, including the possibility of another cut in interest rates and another round of quantitative easing. Mr Draghi went on to highlight increased risks to the outlook, including geopolitical factors, rising protectionism, and “vulnerabilities” in emerging markets, stating: “In the absence of improvement … additional stimulus will be required”. President Donald Trump complained via Twitter: “Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete with the USA”.
The EC warned that Italy’s debt levels are set to rise to 135% of GDP in 2019 and 2020, citing the damage inflicted by recent policy choices. Italy’s leaders appear to be somewhat divided on the issue, according to credit ratings agency Fitch, which reported that, while the Prime Minister and Finance Minister were keen to avoid the imposition of an Excessive Deficit Procedure (EDP), Italy’s Deputy Prime Minister did not support “cuts, sanctions and austerity”.
A move to begin the further enlargement of the EU was put on hold during June as plans to initiate discussions on the accession of Albania and North Macedonia into the bloc were postponed, perhaps until as late as October. Elsewhere, after protracted negotiations, the EU reached a trade agreement with Mercosur, a trading bloc formed of Argentina, Brazil, Paraguay and Uruguay. The deal – the EU’s largest to date – covers 780 million people and will save Europe €4 billion-worth of duties.
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