Euro Zone Inflation Falls, EU Proposes Tighter Banking Rules

Nigel Thomas
16 Apr, 2013
New York City

Financial markets across the euro zone rebounded following the gains in New York. The European Union proposed tighter banking rules and proposed higher capital and limits on annual bonuses. Inflation across the euro zone fell to 1.7%.

[R]4:00 PM Frankfurt – Financial markets across the euro zone rebounded following the gains in New York. The European Union proposed tighter banking rules and proposed higher capital adequacies and limits on annual bonuses. Inflation across the euro zone fell to 1.7%.[/R]

European shares trade mixed on simmering concerns about global economic outlook. The European Union proposed tougher banking rules and the euro zone March inflation holds steady.

Shares fell in London for the third day in a row but other markets in Europe recovered.

The FTSE 100 index declined 0.24% or 15.06 to 6328.54 after significant losses in financials and consumer stocks.

Mining stocks picked up slightly in early morning following a slight recovery in select metals.

In Frankfurt, the DAX rose to 7,714.28, up 0.02% capping losses since Friday. The CAC 40 in Paris inched up 0.05% to 3,712.35.

Tighter Banking Rules Proposed

The European Union tightened bank lending rules and bonuses that will curb short term trading and leave losses for depositors and make banks vulnerable to bailouts.

The Capital Requirements Directive 4-the EU's new banking guidelines effective 2014-requires banks to boost capital reserves and stop high-risk lending to avert failure.

It forces banks to raise the portion of best quality core capital to 4.5% from 2%.

For risk weighted assets, a minimum total capital of 8% must be held and bonuses should not exceed annual salary, according to the directive.

The UK, which dominates Europe's financial sector complained about the bonuses action.

George Osborne, Chancellor of the Exchequer, said the measures would ""have a perverse effect.""

The Eurozone March inflation rose only in Portugal but prices fell in Greece, and annual inflation for March came in at 0.2%.

In Finland, Germany and the Netherlands inflation didn't change and slowed for the rest of the euro zone countries.

The economy of the currency union is expected to shrink as much as 0.4% in the current year squeezed by poor disposable incomes, government austerity measures and ongoing debt crisis in the peripheral nations.

Subdued UK Inflation

The UK inflation for March was reported flat at 2.8% matching the index in February, according to the data released by the Office for National Statistics.

Prices car insurance and books rose faster, but lower costs of household furniture and fuel pared the increase.

Producer inflation eased to 2% annually, the lowest in nine months.

The Bank of England expects consumer inflation to rise beyond 3% in 2013 on higher food and energy prices.

Across the euro zone, annual inflation fell to 1.7% in March from 2.7% a year ago, the Eurostat said Tuesday, raising prospects for a rate cut soon. The European Central Bank targeted inflation closer to 2%.

Euro Zone Confidence Declines

ZEW, Germany based research organization said economic confidence in Europe's biggest economy fell to 36.3 points in April from 48.5 points a month earlier.

The confidence is on the wane on the latest weakness in the world economic data and ongoing debt crisis in the peripheral euro zone.

ZEW expects a weaker German export growth rate to fall and reduced industrial output in the largest economy in the currency union.

Lower Yields at Spanish Auction

Spain raised 5.1 billion euros Tuesday from a sale of short-term Treasury bills, at a much lower cost.

The Treasury sold 6-month debt of 1.2 billion euros at an average yield of 0.53%, down from a yield of 0.79% at the previous sale on March 12.

Spain also sold 3.9 billion euros of the 12-month T-bills at an average yield of 1.23%, down from 1.36%.