Eurozone holidaymakers rejoice. The value of the euros in your pocket is at its highest level in almost three years.
The single currency has been on a turbocharged summer run, propelling it to its strongest against the dollar since the start 2015 and up to a lofty post-financial crisis record over sterling.
But in a break from previous bursts of euro strength, the rally is generating little anxiety in European policymaking circles about the need to bring the exchange rate back down to earth.
In his first post-recess press conference today, Mario Draghi, European Central Bank president, is likely to repeat that the exchange rate is not an official target for monetary policymakers.
Yet a large part of the euro’s scorching run can be put down to the Italian central banker. His comments in late June declaring victory over deflation dramatically shifted the market mood over the ECB’s plans to withdraw its stimulus measures. This prompted a round of currency buying that has pushed the euro’s real effective exchange rate to a 2014-era high.
Strong currencies can be awkward in a world where inflation is scarce. They help keep a lid on domestic price pressures, making imports cheaper and exports less competitive in relation to trading peers.
Part of the rationale for the ECB’s €2tn quantitative easing blitz was to push down the euro and help the central bank hit its inflation target. But with the eurozone’s recovery generating impressive momentum, the economic case for a stronger currency is growing.
Jitters have also been allayed by figures showing a rise in August inflation and eurozone economic confidence at a decade high. In its latest economic forecasts released on Thursday, the ECB is likely to upgrade gross domestic product growth while slightly trimming price projections.
All this is something Mr Draghi can live with as long as the ECB’s long-term exit strategy from QE passes without significant market incident. Investors will be looking for hints about when the bond-buying will start to be reduced. Most expect a formal announcement next month.
The gradual unwinding of QE, coupled with Brexit uncertainty in the UK and Trump drama for the dollar, are good news for the common currency. Expect the euro to be packing a punch for a while yet.
Chart du jour: Who loves the EU?
Italians aren’t happy with the EU, according to a survey from Bertelsmann Stiftung. The poll of more than 10,000 Europeans found Italy was the member state most dissatisfied with the direction of the EU (81 per cent), while a Brexit-style referendum would result in a tight 56 per cent to 44 per cent margin of victory for Remain (see above).
Brexit’s Champagne federalists
Cheese wars threatened to break out in the latest Brexit policy paper round with the EU demanding Britain legislate to protect the status of mozzarella, Champagne and thousands of other European foodstuffs after Brexit.
In one of five papers drawn up by the European Commission and seen by the FT, Brussels wants the UK to pass domestic legislation to secure intellectual property rights of more than 3,300 food and wine products with “protected geographical indications”. That includes everything from Estonian vodka, Irish whiskey, and the eight varieties of Savoie cheese from Michel Barnier’s home region of France.
The status protects products from imitation or misuse and crucially hints at the contours of a post-Brexit trade arrangement for one of the EU’s most important export interests.
Here’s a rundown of the other position papers:
Data protection: Despite the UK’s desire to keep data flows with the EU uninterrupted after Brexit, the commission notes that “access to networks, information systems and databases established by Union law is, as a general rule, terminated on the date of withdrawal”. It goes on to warn the UK may be called upon to “erase or destroy” all data pertaining to EU subjects and institutions if it fails to abide by all existing laws before its withdrawal.
Northern Ireland: The commission is silent on how suggestions for how to avoid a hard border in Ireland, shifting the responsibility to the UK: “The onus to propose solutions which overcame the challenges created on the island of Ireland by the UK’s withdrawal and its decision to leave the customs union and the internal market remains on the UK.”
Customs: In numbingly technical terms the commission distinguishes how goods in transit will be treated, making clear where the UK government and exporters would still remain responsible (and possibly the target of investigations) under the EU’s value added tax and customs rules.
Public procurement: Open tenders at the point of Brexit should continue under EU rules.
The Europe sweep
Poles apart Jean-Claude Juncker, the commission president, spoke to Politico ahead of a state of the union speech next week, billed as his chance to chart a course beyond the various crises Brussels has faced. Most interesting: the evolving thinking on the European Stability Mechanism and the role a European finance minister could play. He says he is trying to avoid east-west tensions, but there is no sympathy for Poland. Warsaw will be “more lonely after Brexit”, he drily notes.
Early postmortem Election day is still some way off in Germany but the “Why Martin Schulz failed” pieces are already being written. Here is Oliver Georgi’s take on what awaits the Social Democrat leader in FAZ.
Rise and fall Guy Chazan’s long read in the FT looks at the success of Alternative for Germany and anticipates the rightwing party’s decline. Angela Merkel, meanwhile, was jeered on the latest leg of her campaign trail in the rainy Saxon town of Torgau.
Sore loser Hungary reacted with fury after the European Court of Justice struck down its joint appeal with Slovakia against EU migrant quotas. “Politics has raped European law and raped European values,” said Peter Szijjarto, Hungary’s chief diplomat.
Brussels welcomed the ruling and hinted at escalating legal action against the obdurate Hungarians, Poles and Czechs resisting the refugee scheme.
Gravy train Emmanuel Macron risks the ire of France’s trade unions with an attempt to scrap generous pension schemes for rail workers who can retire at 52 — a decade before most employees.
The French president will be in Greece today, making his case for the overhaul of the eurozone.
Another go The Catalan parliament has paved the way for a fresh vote on independence from Spain, scheduled for October 1.
Review welcomed Qualcomm and Apple are among groups to have taken succour from the ECJ decision to grant Intel another review of a €1bn European Commission fine.