Another Bump In The Road For European Fiscal Union: April 30, 2012

Gold and silver had a good finish to the end of last week, with the gold price settling at $1,664 – comfortably above selling resistance that has capped the price at $1,650 in recent weeks. It now looks like it could test the next band of resistance around $1,680. The silver price continues to struggle in comparison with gold, however, and remains holed below the $32 level – another indicator that, for the moment at least, deflationary fears are still dragging on silver.

These fears are of course linked to the seemingly never-ending eurozone debt saga. This morning has brought news that Spain is back in recession, with the Spanish economy contracting by 0.3% in Q1. Standard & Poor’s have also downgraded a raft of Spanish banks, while annual retail sales in Greece for the year to February fell by a whopping 11.1%. In comparison, German retail sales were up 2.8% – yet more proof of the increasing north/south disparities in the eurozone. New data also shows that eurozone inflation eased to 2.6% in April – down from 2.7% in March.

The dominant media narrative at the moment is that “austerity” is failing across Europe, whether it be in the UK, France, Spain or Greece. Francois Hollande, the front-runner for the French presidency, continues to talk about his desire to renegotiate the eurozone’s fiscal treaty “in order to promote growth”. The Telegraph’s Ambrose Evans-Pritchard reports, this is setting up an interesting division between France and Germany, with Chancellor Merkel making no secret of her support for Sarkozy vis-à-vis Hollande, and remaining steadfast in her support for the current Fiscal Union Treaty (the “FU Treaty” as some have dubbed it).

Ambrose notes though that Mr Hollande is “easily biddable” and an “Enarque at heart… The EU elites will try to muddle through. If (European Central Bank) policy is loosened enough, they may just succeed.” It’s hard to disagree with this conclusion, given the institutional pressure on Mr. Hollande to conform to present arrangements, and the traditions of Franco-German cooperation at the heart of the European Union. Merkel will keep her austerity drive, but loosened ECB policy will be the sweetener for Europe’s so-called “growth block”. Money printing will salve wounds once again.