Eurozone: Politics and ECB - Danske Bank

The main events for the next day in the Eurozone, according to analysts from Danske Bank, are the Italian Parliamentary election being held and the results of the German SPD’s member vote on the coalition due to be released on Sunday. The other big event is the March ECB meeting (Thursday), they expect the ECB to change its forward guidance, removing its easing bias.

Key Quotes: 

“In the euro area, we await ‘Super EU politics Sunday’. First, the Italian Parliamentary election is due to be be held on Sunday. Polls have continued to point to a hung parliament. We believe the most likely outcome will be a grand coalition (FI & PD), which will mean moderately higher fiscal spending entailing rising debt level in the medium term. Second, the results of the SPD’s member vote on the coalition with CDU/CSU will be released. Our base scenario is a close and reluctant ‘yes’ from the SPD members, as a ‘no’ would be likely to result in a new federal election where the SPD would lose out. Still, we emphasise that the vote is likely to be close, as the SPD party base has generally been opposed to another grand coalition and has experienced turmoil in the party leading up to the vote.”

“The March ECB meeting is due to be held on Thursday. We do not expect any changes to the policy rates at this time and find it unlikely that the ECB will outline a decision on extension/termination of the QE programme before June. However, we believe it will make changes to the forward guidance in March. Specifically, we are looking for the ECB to have removed the easing bias in the forward guidance, meaning it will drop the paragraph about increasing the APP in size and/or duration if economic conditions turn less favourable.”