It was the formal «condition» to access the single currency. Since then, the European Monetary Union has been far from those initial references. Today, even approaching these limits would be a success: a 60% debt of GDP and a maximum deficit of 3%. The reality, however, is another: «100% is the new 60%», with several countries of the European Union (EU) approaching that level of indebtedness or even exceeding it. The European average is in 83%, with Germany still relatively close to the original objective, with 63%. Spain, on the other hand, has already crossed the threshold of the three digits, although by little. According to the European Commission, Italy reaches 138% of debt over GDP, still far from the maximum of 154% it reached in 2020.
And then is France: with a 115%debt/GDP ratio, it is evident that the French government You need to change course. The problem is that it does not have a parliamentary majority to do so. After a new one motion of trust That has demolished the executive of François Bayrou, the great unknown is where the country is now heading. The only sure thing is that moments of tension are coming. Before even this political crisis, the risk premiums of the French debt in front of the German had already rebounded, surpassing the Greeks and approaching the Italians (see our chart of the week). On the other side of the Atlantic, the public debt of the US already touches 100% of GDP and is expected to continue increasing in the coming years. At the same time, the yields of the long -term sovereign bonds are rising strongly: 30 -year British gilts have exceeded 5% and 30 -year -old American treasure bonds are about to do so. Even in Japan, profitability has begun to rebound.
All this is a clear warning, which increases pressure on governments, especially in Japanwhere public debt reaches 235% of GDP. The resignation of Prime Minister Shigeru Ihiba also points to a turn to a more expansive fiscal policy in the country of the rising sun. The new government is expected to announce a stimulus package to deal with inflation. In addition to the direct aid proposed by the Democratic Liberal Party (PLD) to compensate for the price increase, the plan would include specific spending measures, such as greater support for families with children.
Keys next week
Meanwhile, monetary policy continues to mark the course. After the European Central Bank meeting (BCE) This week, it is the turn of the Federal Reserve (Fed, Wednesday), the Bank of England (BoEThursday) and the Bank of Japan (BoJFriday).
The ECB interrupted in July its type drop cycle. Since then, inflation has stabilized around the proposed objective and economic growth remains solid. Both the BOE and the BOJ probably choose not to cut the types next week. In the case of the BOE, the decision he made in August came forward with a very tight majority and the latest inflation data does not support a new cut. The BOJ, meanwhile, faces a more delicate situation, since inflation is one of the main engines of political uncertainty in Japan. Thus, a climb seems unlikely. Although I could strengthen YEN and contain inflation expectations, it would also be interpreted as another symptom of nervousness in a context already volatile.
Therefore, what guideline will take the Fed? The American Central Bank has shown a hesitant position in its latest meetings, challenging the political expectations of using interest rates to reduce public financing (something that could become against whether inflation expectations increase). That said, after the last employment report, which was little encouraging, there are hardly any obstacles to a cut this Wednesday.
Beyond these three central banks meetings, the economic data agenda is quite light. On Monday the manufacturing data is published in China, while Tuesday will be the turn of industrial production in the EU and the Zew business climate index in Germany. On Thursday the weekly applications of unemployment subsidy will arrive in the US, which probably monopolizes attention after the weak recent labor report. Not surprisingly, the Fed mandate includes guaranteeing full employment and price stability.
In summary, next week it will be marked by monetary policy, although the markets have already discounted the Fed decision on interest rates. Hopefully that is accompanied by more prudent and sustainable public finances.