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Germany, the Netherlands and Sweden oppose European Union joint borrowing despite mounting global challenges, while Denmark is sceptical, finance ministers from those countries said on the sidelines of a G20 meeting in Durban, South Africa.

Dutch Finance Minister Eelco Heinen said that a 2 trillion euro ($2.31 trillion) EU budget for 2028 to 2034 proposed on Wednesday by the European Commission was way too large and was "dead on arrival".

"I'm not in favour of joint borrowing. The Netherlands has never been and will continue on that path," he told Reuters.

Some members of the 27-country bloc argue that joint debt could help fund the massive EU-wide spending plans that the Commission is seeking, allowing cheap borrowing.

Common borrowing was first used by the EU to help countries pay for the recovery from the coronavirus pandemic. But then, as now, countries such as the Netherlands, Germany and the Nordics resented having to pay for poorer southern countries that they see as lacking fiscal discipline.

Swedish Finance Minister Elisabeth Svantesson said the joint debt to deal with the pandemic was exceptional.

"For us and for the whole parliament, from left to right, it was that we did that once. And that was not to be repeated," she told Reuters.

Danish Minister of Economic Affairs Stephanie Lose said joint borrowing was sometimes presented as being the answer to all problems, but that it was important to remember the money would have to be repaid.

German Finance Minister Lars Klingbeil told Reuters on Thursday that the EU had joint debt in what was a crisis situation but this was not appropriate for resolving the bloc's finances.

"Fortunately, we are not in such a crisis right now," he said.

The 27 nations agreed in 2020 to jointly borrow 800 billion euros for the Next Generation EU programme, the bloc's pandemic recovery plan.

Heinen agreed that fund was a one-off, adding, "never again".

"When that fund was being set up, the Netherlands already said, be careful, because one day that bill will be presented, and that's the moment we're in right now."

($1 = 0.8589 euros)

Source: Reuters

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Source: xtb

US consumer sentiment rose to a five-month high in early July as expectations about the economy and inflation continued to improve.

The preliminary July sentiment index rose to 61.8 from 60.7 a month earlier, according to University of Michigan data released Friday. The figure still remains below levels seen throughout last year.

Consumers expect prices to rise at an annual rate of 4.4% over the next year, down from 5% in the prior month and the lowest since February. They saw costs rising at an annual rate of 3.6% over the next five to 10 years, also the lowest in five months.

At the same time, concerns about tariffs continue to limit optimism about the outlook for the economy.

“Consumers’ expectations over business conditions, labor markets, and even their own incomes continue to be weaker than a year ago,” Joanne Hsu, director of the survey, said in a statement.

“That said, the recent two-month lift in sentiment suggests that consumers believe that the risk of the worst-case scenarios they expected in April and May has eased,’’ Hsu said.

Consumers’ views of their current personal finances increased, likely supported by the rally in the stock market. The survey concluded on July 14, more than a week after President Donald Trump signed his budget bill into law, extending tax cuts and new breaks for tipped workers.

Still, Hsu said announcements of higher tariffs or a pickup in inflation would likely restrain sentiment.

The survey showed the current conditions gauge rose to 66.8 from 64.8, while the expectations index edged up to 58.6.

The increase in sentiment was driven by Republicans and political independents.

Source: Bloomberg

Source: finance.yahoo

Inflation has been the big economic concern for several years now, across much of the globe (though not quite all, as we’ll see in a moment). But the tentative, broad view has been that prices are now sort-of, kind-of under control. Certainly enough so that markets largely expect central bank interest rates to keep falling, albeit slowly, over the next year or so.

In the US, President Donald Trump has even gone so far as to put a great deal of pressure on Federal Reserve boss Jerome Powell to cut interest rates, pelting him with insults and even threatening to fire him (which may not even be possible).

The problem, however, is that prices don’t actually seem to be cooperating with the hopes and dreams of politicians and central bankers. In the UK, we’ve seen inflation come in “hotter” than hoped on a regular basis, with this week’s data no exception.

And over in the US, even without much obvious impact from tariffs as yet, inflation is nowhere near “beaten,” as my colleague John Authers pointed out earlier this week.

So progress toward a more “normal” world has been a lot slower than was expected a year ago. And that does rather raise a question. In yesterday’s piece, I pointed out that it’s actually quite tricky for the Bank of England to consider cutting rates aggressively when inflation is barely below Bank rate.

So what if inflation actually stops falling? What if it starts to perk up again?

It’s not out of the question. As Vincent Deluard of global financial services company StoneX Group points out, Powell could be forgiven for leaving US interest rates on hold at the next Fed meeting.

Although US core CPI is rising at an annual rate of 2.7% (as per the June data released last week), US services inflation remains stubbornly high, and there are signs that tariffs may be adding to the cost of durable consumer goods, such as washing machines.

On this latter point, UBS economist Paul Donovan highlights that it might be easier for companies to push the rising cost of infrequently purchased goods onto consumers. It’s one thing to notice the price of milk or petrol going up, but if you last replaced your telly or washing machine five or more years ago, you’ll probably be less sensitive to price changes.

Moreover, as Bloomberg columnist Simon White points out, various leading indicators “point to re-acceleration in inflation in the second half of the year, almost regardless of where tariffs settle.” (Those of you with access to Bloomberg terminals can read his work by subscribing to the MacroScope column, which I’d highly recommend.)

The China Surprise

Pricing pressures stem from factors including rising freight costs, rising industrial metals prices, and also food prices. But there’s another big potential inflationary force, coming from a surprising direction — China.

I say surprising because China has a long history of exporting deflation in the form of cheap goods. On top of that, China is among the few economies that are internally battling deflation.

Indeed, the Chinese government is very keen to put an end to deflation, as this fascinating piece by my Bloomberg Opinion colleague Shuli Ren explains. (One reason this piece in particular caught my eye is because “vicious” private sector competition is not necessarily something one associates with a communist economy.)

This isn’t a simple battle to win. However, as White notes, the pace of money growth in China now does look as though it’s accelerating. China is hugely significant in terms of the global money supply, so this is worth watching. Indeed, the country is so large that “money in China is the single most important driver of global liquidity,” White says.

Why does this matter? Without wanting to get too monetarist about it all, more money should mean more borrowing, more spending, more economic activity and more growth, and in turn, more inflation. Given China’s sheer scale, that means more inflation globally.

Adding it all up, there’s a risk that we’re all being a bit overconfident about the idea that inflation is now behind us as a major issue.

What could put a serious dent in this thesis? A recession is the most obvious outcome that might stifle inflationary pressure. But even then, any slowdown might take on more stagflationary than deflationary characteristics.

Also, despite vast government debts, leaders are under pressure to keep spending — or to at least duck hard choices — in order to appease irritated electorates. Japan is merely the latest economy whose election this weekend has been dominated by anger over the cost of living.

As far as what it all means for your money, all I can suggest is that you stay vigilant, be prepared for more potential bond-market drama, and hold at least some portion of your portfolio in “real” assets, which have a tendency to hold their value in inflationary times. My colleague Merryn had some thoughts on this in her newsletter last week.

Source: Bloomberg Europe

Source: Bloomberg