The Daily Update - ECB & Merkel's Warnings

Francois Villeroy de Galhau, an ECB Council member has warned that the slowdown in the EU economy over the recent months has been ‘significant’, to the extent that if it becomes clear it’s not a temporary blip, the ECB will have to change its forward guidance. Villeroy, seen as a frontrunner to succeed Mario Draghi as ECB president later this year and is head of the French central bank, stated in an interview ‘The key question will be if the slowdown is temporary - with a bounce-back during this year - or more durable’. The EU economic downturn seems to have taken the ECB by surprise, with Germany narrowly missing a recession, whilst Italy didn’t. However, the problem for Europe’s biggest economy going forward is that being export led, it is more adversely affected by global political uncertainty. Whereas, Villeroy believes countries like Italy, Spain and France may prove more resilient due to their economies relying more on domestic demand.

One person who knows only too well the headwinds facing not only her own economy but that of the global one also is Angela Merkel, who got standing ovations at the Munich Security Conference on Saturday, with the notable exception of US Vice President Mike Pence and Ivanka Trump. At the conference, Merkel warned of the disintegration of international political structures, the threat to NATO, whilst stressing an all-inclusive approach was needed, embracing political and economic realities, as well as military ones. She told her audience ‘What we see as an overall architecture underpinning our world as we know it is a bit of a puzzle now; if you like, it has collapsed into many tiny parts’ adding ‘We have to think of integrated structures and interdependencies’. Merkel did not hold back on her thoughts of the Trump administration, rejecting US demands to pull out of the Iran deal whilst ridiculing Trump's suggestion that German cars are a threat to U.S. national security. She took pleasure in telling her audience that carmaker BMW's largest plant is in the US, not in Bavaria.

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