The European Commission and the US are once again in talks over an ambitious and comprehensive deal to create the world’s biggest free trade area, after France successfully negotiated protection for its movies and online entertainment industry. The hope is that removing existing tariffs could help to boost growth through a notable rise in transactions between the world’s two biggest trading blocs.
The IFO Institute for Economic Research, based in Germany, believes that such a deal could be hugely beneficial for the most economically distressed countries in Europe, including Greece and Spain – as well as the UK. The consequences, however, could include smaller trade flows inside the European Union as more goods and services head overseas – as well as potential damage to countries such as Canada and Australia, which rely on close trading ties with the US in particular.
Whether or not an agreement can be reached within the next year or two over such a game-changing undertaking, (on-off discussions over a no-tariff trading agreement have been ongoing since the 1990s) it adds fuel to the fire. Positive sentiment towards Europe is growing. Yields on peripheral government bonds have fallen considerably from the unsustainable levels we saw in the first half of 2012, while current account balances are steadily improving in countries such as Portugal, Greece and Spain. Business confidence is also recovering, albeit slowly, as shown by the most recent updates from the European Commission’s Economic Sentiment Indicator and the manufacturing Purchasing Managers Index (PMI).
These views may differ from those of Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
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