This week’s global financial report:

A highlight of financial developments around the world

A Divided Union

From the beginning of the European’s sovereign debt crisis ten years ago the EU has been divided.

The northern states such as Germany, Netherlands and France have been concerned about propping up the economies of member states from the south, at their expense. Recently politicians from Amsterdam have looked to reduce fiscal integration and banking reforms along these lines. This has led to large debates across the EU over monetary policy and how much help should be given.

At the start of this month, the ECB (European Central Bank) continued quantitative easing, which is essentially the purchase of bonds using newly created money. This decision is extremely contested, with central bankers from the north publicly rejecting the policy, highlighting the possibility of negative interest rates, a potential to transfer wealth from the north to the south and ethical concerns about simply letting southern European countries off the hook completely for their poor economic performance.

However, this view isn’t entirely fair. When the European Union first formed GDP in the southern countries were 30-40% lower than that of northern countries to begin with. In addition, Germany was battling with poor growth rates and had high unemployment. If you compare Germany’s wealth, who is one of the biggest opponents of quantitative easing, with other EU countries such as Austria, Germany’s average income per person was one-tenth lower.

Across the Union, labour flows from south to north. Between 2008-2017 Germany received almost one million workers from southern EU countries. Southern countries such as Greece and Portugal are constantly losing young, skilled and high educated workers to northern countries. Thus, the northern economies are benefiting from a large transfer of skill coming from the south.

Despite this, the ECB’s decision is likely going to be contested amongst northern European countries for the next couple of weeks. 

 

 

Sinking oil profits

Two days ago, the IEA (International Energy Agency) announced that market trends indicate that both the Russian Federation and OPEC (the Organisation of the Petroleum Exporting Countries) would only provide 47% of the world’s oil by 2030. In addition to this, reports from the economist estimate that the global demand for oil is lower than it has been since the 2008 financial crash with just a 0.8% increase.

Members of OPEC are feeling a financial squeeze in the wake of the rise of climate change consciousness. Climate change activists and the rising broader environmental movements have resulted in a decline in the power that OPEC countries once had in the energy sector. In the wake of these events, OPEC and the Russian Federation are set to meet on the 5th and 6th December to devise a new strategy.

However, the alliance has already tried new strategies and failed. In December of 2018 they announced a cut in production of 1.2m barrels a day to attempt increase prices of oil globally. This strategy has been largely unsuccessful as many of the OPEC members failed to reach the new deadline and have actually increased their oil production.

In addition, the increasing amounts of American fracking isn’t helping the economic alliance. The US, under Trump’s economy first environment policies, has increased its oil production by 12% from last year. The U.S will therefore provide a strong stream of oil outside of OPEC for the foreseeable future. 

 

 

Monte Paschi’s money fraud

Last Friday a Milan court convicted thirteen executives of hiding hundreds of millions from derivatives between 2008 and 2012.

They also found that these executives were operating in collusion with Deutsche Bank and Nomura to help conceal the funds. These convictions have resulted in some of the toughest outcomes of any procedures relating to the financial crisis. 

The most notable punishment was handed to Mr Giuseppe Mussari, who was Monte Paschi’s chairman at the time of the fraud, receiving seven and a half years in prison. In addition to this, Deutsche Bank and Nomura were fined around €160 million Euros or £137 million pounds. 

The losses the bank has received, made worse by this fraud, has led to three separate bailouts of Monte-Paschi by the taxpayer in the last 10 years.

 

 

That’s all for this week’s highlights

By Richard Mills

Head Office Manchester

City Tower, Piccadilly Plaza, New York St, Manchester M1 4BT. 0161 826 7090

London

Suites 518-520, 9 Devonshire Square, London, EC2M 4YF