European Morning Fundamental Wrap: Attention goes to Italy and Cyprus

FXstreet.com (Barcelona) - The Euro area holds institutional focus this morning with the most recent news from Italian politics and how the Cyprus bail-in did not have the effect on European depositors that many were expecting.

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In regard to Italy, ANZ research analyst Brian Martin noted that the new Italian Government has raised recovery hopes in the beleaguered nation, as it will attempt to address the dire economic environment and ease austerity further. Jim Reid of Deutsche Bank will be looking for headlines from today’s meeting between new Italy PM Enrico Letta and German Chancellor Merkel at 16:00 GMT, especially because of yesterday’s remarks about strategies to boost growth without having to restructure public finances. “The new government is seeking to introduce new fiscal measures such as lowering payroll taxes to boost employment as well as delaying an increase in VAT and suspending the controversial property tax”, wrote Investec Treasury Analysts. “The new government is seeking to introduce new fiscal measures such as lowering payroll taxes to boost employment as well as delaying an increase in VAT and suspending the controversial property tax”, they added.

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that at the end of last week, the ECB reported that the bailing in of Cypriot depositors did not scare other Eurozone depositors: “Cyprus was the only country that experienced a decline in deposits, with 2.4 bln euros of non-bank deposits leaving. The decline in Cypriot deposits since the Greek PSI appears to have been largely a function of non-residents fleeing. Deposits from domestic residents fell 3.1%, but those from other euro area residents fell nearly 13%. Deposits from the rest of the world fell more than 9%”.