Brussels, 28/04/2014 (Agence Europe) - On Monday 5 May, eurozone finance ministers will discuss the effect of the high euro exchange rate on low inflation in the eurozone and will take note of Portugal's decision on how to exit its three-year aid programme.
“I expect some discussion at the very top on issues such as inflation differentials”, said a high-ranking EU official on Friday 25 April, adding: “We do know that certain exchange rate shifts have contributed to a below average inflation rate and other factors being very low sinking commodity prices”. The European Central Bank (ECB) has responsibility for controlling inflation, but eurozone ministers have power over the exchange rate, which stood at just under €1.40 dollars to the euro on Monday 28 April.
Discussing the non-conventional measures that the ECB may take if the medium-term inflation prospects deteriorate, the head of the ECB, Mario Draghi, said last week that the euro exchange rate would be an increasingly important factor in the ECB's analysis (see EUROPE 11067). The provisional inflation figures in the eurozone to be published by the EU's statistical office, Eurostat, this week will be closely monitored. Inflation stood at 0.5% in March, slightly lower than February's 0.7%.
Portugal. The Eurogroup will discuss the completion of the Portuguese aid programme and take note of the decision by the government on how exactly to exit the aid programme.
The country's macroeconomic situation has greatly improved, and investors seeking an outlet in Europe are opting for Portugal so analysts think the country will make a clean break and not request a preventative credit line from the European stability mechanism (ESM) as back-up.
Last week, Lisbon successfully issued €750 million of ten-year bonds at rates averaging 3.6% (see EUROPE 11066).
Greece. After Greek debt reduction being discussed by the Euro Working Group of experts recently, the country will be discussed by the ministers.
Eurozone finance ministers are expected to ask national experts to launch technical studies on the issue. Reduction of the Greek debt, which has been made possible by the achievement of a primary budget surplus (not including debt servicing costs) in 2013, will be discussed by the next troika (European Commission, European Central Bank and International Monetary Fund) monitoring mission in Athens as well.
Greece is expected to unveil its growth strategy for the next few years at the Eurogroup meeting. “In Greece there are significant challenges after these challenging times”, stated a high-ranking EU official.
The ministers will be briefed on budget and economic policies in countries with new governments, such as Austria. The situation in France and Germany will also be addressed.
Direct bank recapitalisation. Put on the back burner until agreement is reached on the bank resolution mechanism (SRM), talks will resume on Monday to finalise the guidelines that will allow the ESM to directly recapitalise struggling eurozone banks. Direct recapitalisation will not be possible until the ECB becomes the eurozone's bank supervisory body in November and will be capped at €60 billion. It will be retroactive on a case-by-case basis.
On Wednesday 28 May, the eurozone will sign an intergovernmental treaty to establish the bank resolution fund (SRF) (see EUROPE 11061). (MB and EL)