EU beats up Spain, a bit

Spain’s deficit target last year was 6% of GDP; the actual deficit was 8.5%, largely because the autonomous regions missed their targets. Against this background, the new Prime Minister Mariano Rajoy has unilaterally increased this year’s deficit target from 4.4% to 5.8%, will still targeting 3% by 2013 (which would bring Spain into line with the fiscal compact). The EU is pressing for a further 0.5% reduction this year to 5.3%. This is a combination of doing something for the sake of doing something, and a desire to keep up the pressure on troubled countries at least to continue moving in the direction of further budget cuts. It represents something of a departure from hard-line austerity — the EU has effectively accepted that the Spanish timetable for deficit reduction has slipped and made allowances for that. Consequently, the short-term situation for Spain, and for the EU as a whole, looks slightly less bleak.

BoJ declines to increase asset purchases

At its latest meeting, the BoJ decided not to add to its asset purchases in spite of pressure from DPJ lawmakers (who have called Mr. Shirakawa before them a remarkable 11 times already this year — about once a week). It did announce a relatively small increase in a loan programme of JPY 2tr, including JPY 1tr (USD 12bn) of USD lending. I do not think that the market was expecting more action so soon; JPY has continued its decline.

Fed stress tests

The Fed is to release the results of its latest bank stress tests — which it will use to determine how large banks’ dividends are allowed to be — on 15th March. The scenarios used have been pretty testing: another housing collapse, and a decline in GDP of 8%. These stress tests are an annual requirement under Dodd-Frank. I do not think they tell us very much about the macro environment at present; it is when they start to get easier on a YOY basis that the seeds of the next crisis will begin to be sown.


  • UK RICS house price balance -13 b.e. Feb. Continued improving trend.
  • Australia home loan growth had a negative month, d.e., but remains on a fairly strong upward trend.
  • French CPI 0.4% a.e. Feb.
  • UK trade balance -7.5bn a.e. Jan. Still big but notably narrower than much of the past 18 months.

Next 24 Hours

  • ZEW
  • Draghi speaks
  • Retail sales
  • Business inventories
  • FOMC statement
  • China FDI
  • UK employment data
  • Eurozone CPI
  • Eurozone IP