ECB President Mario Draghi (R) speaks to Bundesbank President Jens Weidmann. Photo: Anadolu Agency via AFP/Mehmet Kaman
ECB President Mario Draghi (R) speaks to Bundesbank President Jens Weidmann. Photo: Anadolu Agency via AFP/Mehmet Kaman

Economic confidence in the euro zone soared on Monday to its highest mark since January of 2001, Bloomberg reports, citing the European Commission. The reading of 114 for October marks the fifth consecutive monthly gain, and compares to a median estimate of 113.3 in a Bloomberg survey.

Indicators from Bloomberg and EC:

  • Sentiment increased across all sectors
  • Data on Tuesday expected to show euro zone economic growth expanded for 18th consecutive quarter
  • Unemployment rate forecast to have fallen 9% last month
  • Germany headed for fastest annual expansion since 2011
  • Spain’s unemployment fell to 9-year low, though slowdown expected amid political crisis

Despite the region’s robust performance in line with the broader global economic recovery, the European Central Bank is divided over how the economic resurgence should inform policy.

ECB president Mario Draghi is determined to postpone any tapering as long as possible, saying that the recovery still largely relies on the stimulus measures.

“Growth is growing and momentum is also growing and the labor market and everything is doing well,” Bloomberg reported Draghi as saying to reporters last week. “[…] this confidence is also tempered by the fact that we know that all this process, it still relies very much on our monetary-policy support,” he said.

ECB policy maker and German central bank chief Jens Weidmann pushed back on Draghi’s view last week, saying of the ECB’s decision not to set a clear end date to bond-buying, “from my point of view, a clear ending to the net sales [of bonds to the ECB] should have been indicated.”

Certainly, Germans are the hardest hit by the ECB’s ultra-easy policy, while Draghi’s home of Italy will face huge challenges when the great unwinding begins, as the Wall Street Journal reports:

“Tapering is a much bigger problem for Italy than for the eurozone as a whole,” says Jack Allen, economist at Capital Economics.

And now, political concerns loom. National elections, currently expected in March, are expected to produce a hung parliament, according to analysts including Lorenzo Codogno, founder of LC Macro Advisors Ltd..

That could mean a broad left-right coalition that is too weak to push through unpopular measures such as a reform of Italy’s civil service or opening up closed professions. Nervousness about tapering and the elections have already driven a slow-motion flight out of government debt.

“Everyone in Italian politics thinks…the situation isn’t as critical as it [is],” said Klaus Schrader, an economist at the Kiel Institute for the World Economy. Thus, Italy’s economic decline is “a sluggish lingering process….This is a danger.”