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23 December 2003

EZA Report 575: ECB-Monetary




Brussels IGC failure suggests multi-speed EU as likely outcome, EU setback rather than disaster
The recent Brussels IGC on the proposed EU constitution fell apart over the question of voting rights. It was largely inevitable that the conflicts between the larger major states and the smaller ones would be the hot subject for discussion following the railroading of the S&GP rules by France and Germany in Nov03. Although clever brokerage on the constitution suggests a deal can still be reached, pressure of other events — particularly on the budget and admission of Turkey — makes a 2004 deal unlikely. In the near term we think a multi-speed EU, the so-called EU of “variable geometry”, will be the likely outcome. In terms of investment conclusions we think it will be a modest negative for EU accession countries, particularly that of Poland given that next month’s budget negotiations will have been made more difficult. Although broadly euro neutral — the situation after all is unchanged — it will be a minor positive for sterling, given the apparent endorsement of UK’ s red line positions and sterling’s diminishing prospect of euro membership at a lower entry level.

SummaryAsset Conclusions: Failure of the constitution at the IGC summit will have little net impact on the euro but will be a minor positive for sterling

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© Graham Bishop

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EZA575.pdf


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