EU readies to avoid chaos

Bloomberg

German Finance Minister Wolfgang Schaeuble said European Union policy makers have safeguards in place to avoid “chaotic developments” should Britons vote to leave the bloc.
“Ultimately you have to wait for Britons to decide and then you have to respect the decision,” Schaeuble told reporters after a speech at the Institute for the World Economy in Kiel, Germany. “But it’s also clear that then you have to do everything possible to avoid chaotic developments. We are well-prepared for that.”
If the UK left, the EU couldn’t just continue with business as usual because “otherwise many would get the same idea,” he said.
While Schaeuble didn’t elaborate, his comments jibe with similar assurances from other leading EU officials such as European President Donald Tusk. Four days before Britons vote on whether to exit the European Union, Schaeuble — a strong advocate of the UK staying in — singled out the Brexit as a geopolitical risk.
Other reasons for “for the high level of nervousness and volatility in the markets” include Islamist terrorism, armed conflict in eastern Ukraine and an “excess of liquidity and debt,” he said in a speech at the Kiel institute. Those excesses are compounding market turmoil as central banks reach the limits of measures to boost growth, according to Schaeuble.
“For many authorities, there’s still a great temptation to buy time with money that one doesn’t have,” Schaeuble said. “Fiscal and monetary policy measures have reached their limits.”
Schaeuble is the most prominent voice in German Chancellor Angela Merkel’s government to question central-bank policies, once suggesting that ECB President Mario Draghi should share the blame for the rise of the Alternative for Germany party. A measure of core inflation that excludes volatile food and fuel costs rose in May at a 2.2 percent annual rate, according to Labor Department data released June 16. The Fed targets a 2 percent inflation rate based on a separate gauge. The Atlanta Fed said its model for gross domestic product projected a 2.8 percent annualized growth rate in the second quarter, up from a 0.8 percent rate in the previous three months.
“The markets seem to be less sensitive to the economic data,” said Stephen Stanley, chief economist in New York at Amherst Pierpont Securities LLC. “The markets are so influenced at this point by some of the global distortions that the domestic data don’t have the influence they might have had in a more normal monetary policy environment.” The latest drop in yields will test investor demand when the Treasury issues US$88 billion of fixed-rate notes in three auctions next week. Elevated demand for U.S. securities left primary dealers, which are obligated to bid at debt sales, with record-low awards at a pair of note sales last month.

The Treasury cleared any bond sales from the day of the U.K.’s Brexit referendum in a move seen aimed at avoiding any impact from the vote. A $5 billion sale of 30-year inflation-protected securities was brought forward one day to June 22.