Europe Insights - December 2021
Europe Insights - Macro, equity and fixed income monthly
- In a nutshell, fiscal and monetary policies as well as key elections in Italy and France will take centre stage.
- A very progressive and cautious policy exit by the European Central Bank should steer a staged rise in bond yields. But inflation and pandemic developments may create two-way risk.
- The European Union fiscal rules are set to be reinstated in 2023, and discussions have been taking place for a potential revision. A strict compliance to the EU rules is unlikely, given the risks of a contraction of the economy, and likely renewed Euroscepticism. But country divergences in reducing public debt will probably revive tensions within the bloc.
- Elections in Italy and France next year will be important to monitor. Italy’s coalition government should support a consensual president, while a tail risk would suppose that Prime Minister Mario Draghi takes the role. Polls in France currently suggest continuity, but populist parties hold close to a third of the voting intentions.