Italy's Euro Party Not Universal as Ferrari, Campari Rejoice

As some of Italy’s best-known brands from Ferrari to Campari toast the weaker euro, many in the currency region’s third-biggest economy have little to celebrate so far.

The euro’s drop below $ 1.10 is favoring companies focused on markets outside the 19-nation bloc. But with more than 40 percent of the nation’s exports going to other euro countries, the benefit is eluding many in the recession-hit economy.

“The weaker euro doesn’t mean much for us,” said Tiziano Paciti, a partner at marble-work manufacturer Marmi Regina Srl, based near Verona in the north of the country. “Our main clients are in France and Germany, and our suppliers outside the region have always paid in euros and I see no reason why they should change now.”

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With the European Central Bank pumping in stimulus to help the euro area, President Mario Draghi has touted the resulting weaker currency as a boost for the region’s economy. In Italy, the government has cited the currency’s plunge among the top favorable conditions that will help the country emerge from a record-long recession that began more than three years ago.

The euro has plunged about 11 percent against the dollar this year and is the worst performer among a basket of peers measured by Bloomberg Correlation-Weighted Indexes. It was trading at $ 1.08 Wednesday after falling below $ 1.05 last month.

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Jeep Renegade

While Paciti’s remarks reflect the view of thousands of small firms in Italy, the country’s most famous business leaders see things differently. Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said last month that the cheaper euro will help sales of Jeep Renegade, the first Jeep model exclusively built outside North America.

For Ferrari, controlled by Fiat, the weaker exchange rate also means a profit-margin boost on U.S. sales. Its high-end sports cars are all built at its plant in Maranello near Modena.

“This is a favorable time for Italy,” said Brunello Cucinelli, chief executive officer of his namesake company, known for its linen and silk sweaters. “The weaker euro will support our exports,” he said on March 10, commenting on both the company and the country’s economy.

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Among those celebrating the latest currency-market developments was Milan-based drinks maker Davide Campari-Milano S.p.A. Starting in the fourth quarter of 2014, what it said was a “very unfavorable” currency impact last year was partially unwound, according to its full-year results.

Most of the luxury-goods companies whose exports benefit from the lower euro “manufacture at home, costs are kept low,” Bloomberg Intelligence analyst Deborah Aitken said in a March 24 report. “With strong gross profits, export prices do not have to be raised, making them more competitive.”

No Control

Italian exports to countries outside euro region totaled 238 billion euros in 2014, up 1.5 percent from the previous year.

Data for 2015 have so far been mixed. Sales of goods and services outside the bloc declined 2.4 percent in January from a year earlier, Istat said last month. While comparable data for February won’t be available until April 16, preliminary figures show that exports outside the entire European Union rose an annual 7.1 percent that month. The statistics office will publish February industrial production data on April 13.

“I really don’t understand why the euro exchange rate should be a good news,” Giuseppe Zanotti, founder and owner of shoemaker Giuseppe Zanotti Design, said in a March 17 interview.

“It’s something that we can’t control anyway,” said Zanotti, whose customers include Madonna and Beyonce. “A weaker or stronger euro won’t change the things. A stronger or weaker idea will do that.”

Short Lived

Ultimately, even those benefiting from the weaker euro may find the boon is short-lived, with analysts and economists at Italy’s largest bank forecasting a reversal for the currency.

“The euro may have bottomed out,” Vasileios Gkionakis, UniCredit’s London-based head of global foreign-exchange strategy, said in a note on March 25. UniCredit estimates a long-term euro-dollar fair value at about $ 1.20 and says it’s hard to justify an even short-term fair value below $ 1.15.

For Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara, the currency fluctuations don’t change the ease or difficulties related to Italy’s main export destination.

In a study published in August, he estimated the impact of the currency’s depreciation “to be almost zero or negative in the first three to four years.”

“A depreciation of the euro leaves unaffected the price competitiveness of Italian goods in Italy’s largest market, the euro region,” said Bagnai, author of two books advocating the dismantling of the monetary union. “The increase in exports towards U.S., Japan, and the emerging countries will be offset by an increase in imports from the euro zone.”

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Despite Greece, euro zone is turning the corner

By Paul Taylor

LONDON (Reuters) – The latest episode of Greece’s debt crisis has revived doubts about the long-term survival of the euro, nowhere more so than in London, Europe’s main financial center and a hotbed of Euroskepticism.

The heightened risk of a Greek default and/or exit comes just as there are signs that the euro zone is turning the corner after seven years of financial and economic crisis and that its perilous internal imbalances may be starting to diminish.

To skeptics, the election of a radical leftist-led government in Athens committed to tearing up Greece’s bailout looks like the start of an unraveling of the 19-nation currency area, with southern countries rebelling against austerity while EU paymaster Germany rebels against further aid.

A last-ditch deal to extend Greece’s bailout for four months after much kicking and screaming between Athens and Berlin did little to ease fears that the euro zone’s weakest link may end up defaulting on its official European creditors.

U.S. economist Milton Friedman’s aphorism – “What is unsustainable will not be sustained” – is cited frequently by those who believe market forces will eventually overwhelm the political will that holds the euro together.

Countries that share a single currency cannot devalue when their economies lose competitiveness, as occurred in southern Europe in the first decade of the euro’s existence. There is no mechanism for large fiscal transfers between member states.

So the only option has been a wrenching “internal devaluation” by countries on the periphery of the euro area, involving real wage, pension and public spending cuts and mass unemployment that has caused deep social distress.

Austerity has fueled radical forces of political protest and may be running out of democratic road – not just in Greece – but none of the alternative ways out of the euro zone’s economic divergence dilemma looks remotely plausible.

“The history of the gold standard tells us that an asymmetric adjustment process involving internal devaluation in debtor countries, with no corresponding inflation in the core, is unlikely to be economically or politically sustainable,” economic historians Kevin O’Rourke and Alan Taylor wrote in the Journal of Economic Perspectives in 2013.

“What is desirable for the euro zone may not be feasible.”

Germany has so far been unwilling to see either higher inflation, debt forgiveness, issuing common euro zone bonds or cross-border fiscal transfers. There is scant support anywhere for closer political and economic integration of the euro area.

“The strategy of the euro zone has been to wait for something to turn up,” says a senior figure in the British financial establishment, who observed the euro zone crisis from close up but outside.

“In the 1930s, World War Two turned up. Maybe something else will turn up,” he said, speaking on condition of anonymity.

The European Central Bank has acted at key moments to hold the euro zone together, vowing in 2012 to do “whatever it takes” to save the currency and now launching a massive program of buying government bonds to spur the economy and avert deflation.

ECB action can only buy time for governments to implement structural economic reforms that could close the competitiveness gap by raising potential growth over time. But countries like France and Italy largely failed to use that breathing space in 2013-14 to shake up labor markets, pension and welfare systems.

Yet things can go right as well as wrong.

A nascent cyclical recovery in the euro zone, aided by lower oil prices, a weaker euro and ECB money-printing, may narrow the imbalances that have led skeptics to predict the euro’s demise.

Ireland and Spain, which have been through the wringer of austerity programs and structural reforms in return for European assistance, are now the fastest growing economies in the currency bloc. Portugal too is perking up.

German wages are rising faster than prices, giving a boost to consumer spending and raising the prospect that inflation in the bloc’s biggest economy may outpace the rate in southern Europe for several years. That would make economic adjustment more symmetrical, and less agonizing for the south.

There are also signs that France and Italy, the euro zone’s second and third largest economies, are finally tackling some of the economic reforms that politicians long feared to touch, albeit at a slow and gradual pace.

French President Francois Hollande’s government has just rammed through a bill to loosen some shackles on business such as Sunday trading and plans new steps to ease labor regulation.

Italian Prime Minister Matteo Renzi has introduced a jobs act to ease hiring and firing and is making progress on reform to streamline parliament and the electoral system.

“Spain shows that reform is possible to create a growth environment and significant job creation,” said Luigi Speranza, co-head of European economics at BNP Paribas bank in London. “The return of growth could make it easier for Renzi to make reforms in Italy, and Hollande in France.”

 The European Commission’s budget leniency for Paris and Rome may assist that process by rewarding them for planned growth-enhancing reforms with more time to cut their deficits and debt.

Another encouraging sign is that lending to businesses in Italy and Spain is picking up following last year’s ECB stress tests of European banks and their interest rates are falling, narrowing the gap with the euro zone core.

“What worries me is that some of the factors behind the rebound are temporary,” Speranza said. “Structural reforms could make that more sustainable and build confidence.”

A Greek default or exit from the euro zone – whether by “Grexident” or intention – could shatter that returning trust, even though Athens accounts for just two percent of the bloc’s economy. So Greece’s fate remains entwined with the euro’s survival.

(Writing by Paul Taylor; Editing by Stephen Powell)

Weak Euro Helps Prop Up Italian Economy, ETF

The depreciating euro currency could help promote healthier growth in the Italian markets and country-specific exchange traded fund.

The iShares MSCI Italy Capped ETF (EWI) has increased 6.5% over the past month after falling 13.0% over the past year. [PIIGS ETFs Look to Breakout]

Pier Carlo Padoan, Italy’s finance minister, argued that the euro, which traded at about $ 1.132 Tuesday from $ 1.39 back in May 2014, is now trading at a level more consistent with economic fundamentals, the Financial Times reports.

“The macro picture in Europe?.?.?.?is now a little bit more encouraging than it was a few months ago,” Padoan said, adding that the euro is “approaching… a more fundamental, consistent exchange rate.”

The euro currency has been weakening ever since the European Central Bank announced its aggressive quantitative easing program. [Ahead of ECB Meeting, a Rush to Europe ETFs]

Italy’s economy significantly benefits from the weaker euro currency as most of its competitive industries, including manufacturing, food and wine, heavily depend on exports – a weak euro makes Italian goods cheaper for foreign buyers.

Italy is the seventh largest exporting economy in terms of gross exports and fifth largest manufacturing producer in the world, writes Michael Hennigan for Finfacts.

The country’s industrial sector is also strengthening, with industrial production rising 0.4% in December, marking the second consecutive month of growth for the first time in over a year, reports Liam Moloney for Dow Jones Businesses News.

“It’s mainly machinery and it is from abroad, rather than a domestic pickup,” Istat official said.

Additionally, looking at Italy’s economy, the country is expected to shift out of a three-year long recession. The Bank of Italy, the European Commission and analysts anticipate the Italian economy to expand at least 0.5% this year.

iShares MSCI Italy Capped ETF

For more information on Italy, visit our Italy category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Euro rate makes trip a deal

* Travel agencies reporting Europe is a top destination, with bookings being made now

Travelers may have been dismayed by the thousands of canceled flights at Northeast airports on Monday ahead of the storm; however, there’s good news once the tempest passes. Travelers heading into Europe in warmer months will find their dollar will go a little further.

Last week, the European Central Bank said it would buy 1.1 trillion euros, or $ 1.3 trillion, worth of government and corporate bonds, pushing the euro down to the lowest it’s been in more than a decade. The euro climbed 0.5 percent to $ 1.1263 in New York on Monday after sliding to $ 1.1098, the lowest level since September 2003.

The drop in the currency means Americans can expect to see savings when traveling abroad in the 19 countries that use the euro — Belgium, Germany, Ireland, Greece, Spain, Estonia, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

“Travel to any country that is based on the euro rates has not been this low in years,” said Bert Rosenbluth, owner of Magnum Travel Inc. in Closter, in an email. “Bottom line – there are good deals and terrific value [in] planning travel to that part of the world now.”

In 2014, 11.1 million Americans traveled to Europe, according to the Washington-based Office of Travel and Tourism Industries.

Many local agencies said the falling currency is good for consumers, since the eurozone has not always been a place where the dollar has been robust. Because of the current savings, Europe is already becoming a top destination for summer travel.

At Trips Away Travel in Cresskill, more clients are booking trips to Europe in January than in previous years, said the agency’s president, Josette Carrizzo. Trips booked to Europe in the upcoming summer months usually aren’t made so early in the year suggesting a travel trend, she explained.

At Classic Travel in Wallington, the family-run business doesn’t usually sell many trips to eurozone areas. This year, however, an organized group trip to France and Italy “filled up pretty quickly,” said Peter Majcherczyk, the agency’s trip coordinator.

“It shows people are willing to go,” he said.

The increased interest in Europe lets agencies explore new opportunities, as well.

“The biggest destinations are usually Mexico or some other Caribbean island because the exchange rate is so low,” said Albert Paz, owner of Gabriel’s Travel Agency Inc in Paterson. “This gives us an opportunity to sell a different market and [to] sell to a different client.”

In past years, Paz said trips to Europe ranked around third or fourth in most-traveled-to destinations. This year, European travel ranks first as a hot spot for travel this season.

Though it may be more affordable to go to Europe than in recent years, agents warn that consumers shouldn’t expect any deals on getting there.

“The airlines have not dropped their fares to pass on the savings to the public,” Carol Alesso of Wayne-based Alesso Travel Consultants said in an email. “My clients will feel the difference once they are in Europe and their dollar has more spending power.”

According to data compiled by Expedia and Airlines Reporting Corp., North America and Europe likely will experience decreases in average ticket prices in 2015. The same data show that air-ticket pricing in Europe is the most uncertain in 2015 versus other regions. Still, experts expect the euro to continue falling and advise travelers to hold out on exchanging their dollars.

“Don’t buy euros now – wait for the trip. It wouldn’t surprise me in the least if the euro was even with the dollar by April,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said to the New York Times.

Email: [email protected]

Euro's drop translates to limited benefits in U.S.

NEW YORK — Americans hoping to save on European goods thanks to a falling euro shouldn’t rush to uncork that bottle of Bordeaux. There’s very little to celebrate.

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Not since August 2003 has the euro traded this low against the dollar. However, German sports cars, Belgian beers and the latest fashions out of Italy aren’t going on sale any time soon. The reason? There’s simply too much demand in the United States to trigger any markdowns.

“The U.S. economy is the one that’s doing well in the world right now,” IHS senior principal economist George Magliano said. “We’ve got a lot of growth in upper-income families and households.”

Since Americans are willing — and able — to spend heavily on imported goods, there’s no need for companies to cut prices. Any savings as a result of the euro’s decline will instead be pocketed by manufacturers and distributors.

It has been a dramatic fall for the euro. In April, the European currency was trading at $ 1.38 U.S. to 1 euro. That means that $ 1 bought you about 72 euro cents. Now the exchange rate is hovering around $ 1.12 to the euro, so $ 1 buys you 88 euro cents.

The problem for Americans: We don’t buy enough European goods, except for high-end products. Our clothes might come from Bangladesh or Costa Rica. Our furniture from China. And our cars — even foreign brands like Honda — are mostly made at home.

European brands tend to cater to higher-income families who want to buy a bit of prestige.

Among German automakers, Audi sales rose 15 percent last year, while BMW sales were up 6.5 percent and Mercedes rose nearly 10 percent, so don’t expect any price cuts there. It’s the same issue with, fine wines, Gucci handbags and those designer stiletto shoes.

The one bright spot for Americans: Vacations to Europe are now much cheaper.

Thanks to the currency shift, travelers will pay less for hotel rooms, museum admissions and meals out.

“It’s basically a 20 percent-off sale on the whole eurozone for Americans,” says Adam Goldstein, CEO and co-founder of airfare search site Hipmunk.

“We’re already seeing a significant increase in search activity for flights from the U.S. to Europe, which is a leading indicator of travel.”

Europe’s Bonds Surge as ECB Purchase Plan Fuels Investor Demand

Government bonds across the euro area climbed as the European Central Bank’s pledge to start buying the currency bloc’s sovereign debt for the first time fueled investor demand and pushed yields to record lows.

Italy’s 10-year rate slid below 1.5 percent for the first time after ECB President Mario Draghi said Thursday the institution will expand its asset-purchase program from March. The monthly purchases of 60 billion euros ($ 67 billion) will probably comprise about 45 billion euros in investment-grade government bonds maturing between two and 30 years, as well as the debt of public agencies and existing programs to buy asset-backed securities and covered bonds, a euro-area official said Jan. 22.

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“The program the ECB announced yesterday is relatively large in terms of types of assets and also the maturities to be purchased,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “This is clearly supportive for all euro-area government bonds.”

Italy’s 10-year yield fell nine basis points, or 0.09 percentage point, to 1.46 percent as of 10:27 a.m. London time and touched 1.413 percent, the lowest level since Bloomberg began collecting the data in 1993. The 2.5 percent bond due in December 2024 rose 0.875, or 8.75 euros per 1,000-euro face amount, to 109.58. Spanish (GSPG10YR) 10-year rates declined as much as 16 basis points to 1.249 percent.

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Yields Slide

Rates across the region tumbled after Draghi’s purchase plan sparked fresh demand for the securities investors shunned during the debt crisis. The average yield on euro-area government debt dropped to 0.6838 percent after his Jan. 22 announcement, the least since at least 1995, according to Bank of America Merrill Lynch indexes.

The additional yield investors demand to hold Spanish 10-year bonds over equivalent-maturity German bunds narrowed to 87 basis points on Friday, from as much as 650 basis points in July 2012. Italy’s 10-year yield spread shrank to 103 basis points, from as wide as 575 basis points in November 2011.

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Germany (GDBR10)’s 10-year yield fell to a record 0.359 percent and the 30-year rate slid to within one basis point of 1 percent. The nation’s two-year yield touched minus 0.183 percent, also an all-time low.

All German government debt due in five years or earlier currently yields less than zero. A negative yield means investors buying the securities will get less back when the debt matures than they paid.

Euro-area sovereign securities returned 14 percent over the year through Jan. 22, according to Bloomberg World Bond Indexes. U.S. Treasuries gained 7.2 percent and U.K. gilts 17 percent in the same period.

To contact the reporter on this story: Lucy Meakin in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Keith Jenkins

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Euro plunges, but European brands are not on sale in US

NEW YORK (AP) — Americans hoping to save on European goods thanks to a falling euro shouldn’t rush to uncork that bottle of French Bordeaux. There’s very little to celebrate.

Not since September 2003 has the euro traded this low against the dollar. Still, German sports cars, Belgian beers and the latest fashions out of Italy aren’t going on sale anytime soon. The reason? There’s simply too much demand in the U.S. for any markdowns.

“The U.S. economy is the one that’s doing well in the world right now,” notes IHS senior principal economist George Magliano. “We’ve got a lot of growth in upper-income families and households.”

Since Americans are willing — and able — to spend heavily on imported goods, there’s no need for companies to cut prices. Any savings thanks to the euro’s decline will instead be pocketed by manufacturers and distributors.

It’s been a dramatic fall for the euro. Back in April, the European currency was trading at 1.38 dollars to the euro. That means that one dollar bought you about 72 euro cents.

Now the exchange rate is hovering around 1.13 dollars to the euro, so one dollar buys you 88 euro cents. The euro extended its slide against the dollar on Thursday, dropping more than 2 percent against the U.S. dollar, after the European Central Bank pledged to spend 1.1 trillion euros on bond purchases to help revive the region’s flagging economy.

The problem for Americans: we don’t buy enough European goods, except for high-end products. Our clothes might come from Bangladesh or Costa Rica. Our furniture from China. And our cars — even foreign brands like Honda — are mostly made at home.

European brands tend to cater to higher income families who want to buy a bit of prestige.

Take German cars. Brands like Audi, BMW and Mercedes are luxury products with strong demand. So there’s no incentive to cut prices, says Karl Brauer, senior industry analyst for Kelley Blue Book.

Audi sales rose 15 percent last year, while BMW sales were up 6.5 percent and Mercedes rose nearly 10 percent. Each company is likely to pocket the extra money from converting dollars to euros, no matter whether the cars are made overseas or in the U.S., Brauer says.

Volkswagen, however, might use the weak Euro to reduce prices and boost struggling sales, Brauer says. VW’s U.S. sales fell 3 percent last year even though overall U.S. auto sales across all brands grew 6 percent.

It’s the same issue with, fine wines, Gucci handbags and those designer stiletto shoes.

Bill Earle, president of the National Association of Beverage Importers, which represents 20 to 25 beer, wine and spirits importers, says the price of fancy wines like Brunello or Chianto Classico that are on the shelves now were already set three or four years ago when contracts were signed by U.S. importers. But he says if the disparity continues between the U.S. dollar and the euro, “you might see a softening of prices.”

At most, shoppers will see a two or three percent price dip, says Faith Hope Consolo, who leads retail leasing and marketing at Prudential Douglas Elliman and specializes in the luxury market.

“Anecdotally, U.S. prices haven’t gone down on European-made apparel and alcohol, though such declines would take some time to filter through the system,” Consolo says. “We probably won’t see the effects for several months.”

That’s because the production cycle for European brands takes about a year, so those so-called status products were already produced. Moreover, Nate Herman, vice president of international trade for the American Apparel & Footwear Association, noted a shift in manufacturing away from Europe and more toward Asia — like China and Vietnam — as factories in that region have improved the quality of making complicated goods.

But even if prices go down on high-end European goods, shoppers won’t feel it. Price tags have been soaring way out of reach for most Americans over the past few years. For example, Chanel’s classic handbag, which was priced at $ 2,250 in 2007, cost $ 4,900 last year, according to Robert Burke and Associates, a luxury consulting firm. And Louis Vuitton’s iconic monogram canvas handbag, which sold for $ 620 in 2007, climbed to $ 970 last year.

The one bright spot for Americans: vacations to Europe are now much cheaper. Thanks to the currency shift, travelers will pay less for hotel rooms, museum admissions and meals out.

“It’s basically a 20-percent-off sale on the whole eurozone for Americans,” says Adam Goldstein, CEO and co-founder of airfare search site Hipmunk.

There are 19 countries that use the euro. So those considering deals should look at Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.

“This is the best time to travel to Europe in years,” says Anne Banas, executive editor of SmarterTravel. “Americans can now indulge in a fancy pastry and chocolat chaud without the budget-busting guilt.”

The catch: it will still cost a lot of money to get to Europe during peak summer months. Demand for travel is so strong that most airlines don’t have to cut prices to sell seats.

__

Tom Krisher in Detroit and Steve Rothwell in New York contributed to this report.

__

Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott and Anne D’Innocenzio at http://www.Twitter.com/adinnocenzio .

Euro-Area Bonds Gain on Deflation Concern, Coeure Comments on QE

Euro-area government bonds rose, led by those of Portugal and Italy, amid speculation the risk of deflation in the region will prompt the European Central Bank to expand stimulus measures as soon as this month.

German 10-year yields approached a record low as Die Welt cited ECB board member Benoit Coeure as saying the institution is ready to decide on buying sovereign debt when officials meet on Jan. 22. Bonds worldwide were boosted as declines in oil and copper dragged the Bloomberg Commodity Index to a 12-year low, curbing inflation expectations. The Netherlands sold securities, while Austria, Germany and Italy were due to auction debt. Slovakia and Portugal may sell bonds via banks.

“The inexorable decline in oil prices is reinforcing global disinflation pressures,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. That’s “prompting further declines in 10-year bund yields amid rising expectations of QE by the ECB sooner rather than later.”

Portugal’s 10-year yield dropped four basis points, or 0.04 percentage point, to 2.56 percent at 9:14 a.m. London time. The rate fell to 2.418 percent on Jan. 2, the lowest since Bloomberg started tracking the data in 1997. The 5.65 percent bond due in February 2024 rose 0.38, or 3.80 euros per 1,000-euro ($ 1,182) face amount, to 124.75.

The rate on similar-maturity Italian bonds fell four basis points to 1.77 percent, while that on German 10-year bunds declined two basis points to 0.46 percent. It touched a record 0.432 percent on Jan. 7.

Inflation-Swap

The five-year, five-year forward inflation-swap rate, highlighted by ECB President Mario Draghi in August at a symposium for central bankers, was at 1.50 percent today. That would be the lowest close since at least 2004. A report last week showed the euro area’s consumer-price index dropped an annualized 0.2 percent in December. The ECB’s inflation goal is just under 2 percent.

Brent crude slumped as much as 4.6 percent today to the lowest since March 2009 and copper dropped 1.4 percent.

Portuguese securities returned 1.9 percent in the past three months, according to Bloomberg World Bond Indexes. Germany’s added 3.3 percent and Italy’s earned 2.8 percent.

To contact the reporter on this story: David Goodman in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Mark McCord, Keith Jenkins

Time for bottom fishing in the euro area?

Things will probably get worse because the highly unpopular French government is squeezed by political forces from left and right urging more assertive economic and foreign policies. They see Germany as a hegemon dictating the proceedings to the rest of Europe. The French left is in disarray, but the rightwing parties are regrouping around a distinctly nationalistic agenda largely set by the strengthening far-right Front National (FN) — which is bristling at German hectoring.

“Dozing on a volcano”

German relations with Italy are also characterized by frictions about structural reforms and fiscal consolidation. Struggling with a recessionary economy, a record-high unemployment rate of 13.2 percent (with youth unemployment at 44 percent), and a first-ever general strike last Friday by two of the country’s largest trade unions against a center-left government, Italy’s labor market reforms and fiscal policies are hostages to the notoriously slow and complicated political process.

Some progress on both issues is being made, though. And, without naming names, Italy’s finance minister is complaining that these efforts are not being acknowledged (presumably by Germany). But there is much less discretion about that on the part of Italy’s political leaders the government has to depend on to implement these reforms. A number of them are regularly venting strident anti-German statements and demagogic calls for Italy to leave the euro area.

Spain’s fast-growing radical left movement Podemos (We can) is also drawing strength from hostility to devastating socio-economic effects of austerity policies advocated by Germany. Currently polling at close to 30 percent, Podemos is becoming a serious contender in next year’s general elections. This unprecedented political formation is feeding on a 24 percent unemployment rate, more than half of unemployed youth and nearly one-third of the working poor – “mileuristas” earning about €1,000.00 per month.

Read More Europe economy ‘not improving fast enough’: EU

Greece’s apparently more virulent radical left party – Syriza – has a popular support of 25.5 percent, slightly ahead of the governing center-right New Democracy Party’s 22.7 percent. The poll, conducted by Kapa Research and published today (Sunday, December 14) by To Vima newspaper, also shows that the Greek Socialist Party (PASOK), the country’s third-largest, polled at 6.7 percent.

If, as seems likely, the next Greek president cannot be elected by the parliament in the three rounds of ballots, starting next Wednesday (December 17) and ending on December 29, the Prime Minister Samaras seems inclined to call an election rather than align himself with Syriza.

But regardless of how this situation plays out, Syriza has enough political clout to complicate Greece’s painful economic adjustment by continuing to rail against austerity policies.

And what is Germany saying to all this?

Euro zone inflation dips; Italian jobless hits record

“The scale of the disinflation problem facing the ECB becomes increasingly concerning as time progresses,” Colin Bermingham, an economist at BNP Paribas said in a research note after the release.

“Three of the big four euro zone economies have reported inflation for November and all three are below 0.5 percent (year-on-year).”

Italy jobless hits record

Meanwhile, unemployment figures for October showed a reading of 11.5 percent for the euro zone, holding steady from September. Italy was the major drag with the struggling nation’s numbers reaching a record higher of 13.2 percent in October.

This is the highest the figure has ever been since records began back in 1977. The youth unemployment rate – those aged between 15 and 24 – came in at 43.3 percent, adding 0.6 percentage points in a month, according to the statistics agency Istat.

Read MoreEurope’s bond yields slide on hopes of ECB QE

ECB stimulus?

The inflation data come at a key time for the ECB, just days ahead of its next policy meeting on Thursday. The bloc has been staring down the barrel of negative growth and weak demand, with tensions in Ukraine pressuring Germany in particular.

Market watchers have been busy this week placing bets on whether Mario Draghi, president of the ECB, will announce more stimulus, even as soon as next week.