What's going on?
It’s back to school for Europe as eurozone countries start submitting their budgets for the year to the European Commission – the European Union’s (EU) financial headmaster. All eyes are on Greece and Italy – both up to their eyeballs in debt and under pressure to deliver.
What does this mean?
In the eurozone, countries have to share their budgets with the European Commission to make sure they adhere to the EU’s requirements – like a government’s deficit (i.e. the amount of money it spends over and above what it earns) being under 3% of the size of a country’s economy and its debt being below 60% of an economy’s size (so countries don’t go bankrupt). Greece and Italy have the most debt in Europe – well over the EU’s targets.
Although it’s through the other side of its bailout program, Greece’s economy is still in the doldrums. Its economy might have finally started to grow but there are still icky times ahead. It has to cut pensions and increase taxes to hit its own target of having excess cash left in the budget coffers.
Why should I care?
The bigger picture: Despite the bumpy ride, Europe’s doing okay.
Turkey’s currency woes, Italy and Greece’s debt issues, and the political uncertainty in France, Italy and Spain have kept investors nervous and likely encouraged them to move money to “safe havens” like US government bonds and the Japanese yen. However, recent data shows Europe’s still growing (danke, Germany).
For markets: The future looks rosier.
After October’s budget submissions, the EU will be working hard to give countries’ proposals a yay or nay in November. If all goes well, the European Central Bank’s plan to end its program of buying government bonds to stimulate economic growth (a.k.a. quantitative easing) and raising interest rates in 2019 will be hot to trot.