Robeco: Pheripheral Europe Update

• Draghi doesn’t signal further easing yet  
• EU funds for Spain to be frozen as sanction?

Main market events

Spanish bonds performed well as the long-awaited launch of the new 10-year bond was well-received. The ECB meeting did not move markets. As Italy skipped the mid-August bond auction, bond supply will now slow down for the summer break. Italian bonds have returned 3.59% this year, Spanish bonds 5.6%, Portuguese bonds -1.23% and Irish bonds 4.61%.

ECB

Draghi failed to signal further easing measures for the September meeting. When asked about potential limits to the QE program, Draghi referred to the ECB’s track record of flexibility in adjusting the program to maintain its size.

Weidmann

Bundesbank president Weidmann admitted that the ECB might discuss changes to the QE program after Summer. The program nears the limits on buying German bonds. He warned, however, that the legal limits of the ECB’s mandate need to be considered. He clearly doesn’t favor buying more peripheral debt instead of German bonds. 

Spain

The independent fiscal watchdog AIReF increased its 2016 budget deficit projection to 4.1%-4.7%, citing a progressive deterioration in fiscal compliance. Spanish newspapers reported that EU structural funds (subsidies for Spanish regions) and 60 EU investment projects in Spain will be frozen as part of sanctions for breaching the fiscal rules. Spain’s acting government reportedly asked for another extension of the deadline to reduce the deficit to less than 3%.

Portugal

Finance Minister Centeno formally requested the EU to cancel sanctions on Portugal, threatening that imposing fines would strongly reduce the support for the European project in Portugal.

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