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Pre-Market Primer: The EU to Take Steps Towards a True Fiscal Union


A joint bank account is a bad prelude to a marriage, but it looks like the EU might take control of errant countries' budgets.

MINYANVILLE ORIGINAL The Financial Times saw a draft report of a plan that would give the European Union the power to rewrite national budgets for countries that break the fiscal rules. "Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval. Subsequently, the euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness," the report says.

Borrowing costs for Spain increased as demand for the country's debt fell at an auction today. Yields on the Spanish 10-year rose to 6.73%, still short of the record-high seen last week. Moody's downgraded a dozen Spanish banks today, but left Banco Santander (SAN) and Santander Consumer Finance rated above the Spanish sovereign.

In US macroeconomic news today, the Case-Shiller home price index is expected to show a 2.5% yearly fall in April. Consumer confidence for this month is forecast to fall slightly. Futures rose ahead of the data releases. Dow (^DJI) and S&P 500 (SPY) futures rose 0.10% to 12,424.00 and 1,306.90 respectively while Nasdaq (^IXIC) futures rose 0.15% to 2,530.25.

While oil futures are down 0.32% to $78.96/barrel for WTI, the EU ratified its sanctions on Iranian oil starting on July 1. Officials were worried that energy prices would be excessively expensive if the sanctions went into effect, but the lower prices made these tough sanctions feasible.

After mulling such a measure for years, Japan's parliament passed a bill that would double the consumption tax to 10% over the course of three years. Naturally, this is not a popular measure, but Japan's 5% consumption tax is low among peer countries, and the government's debt burden is more than twice the country's GDP. Japan's chronic deficits are supported by its negligible borrowing costs, which have fallen over the course of this year to just 0.82% for the 10-year note.

Sheryl Sandberg, the current chief operating officer of Facebook (FB), joined the company's board of directors. She is the first female director of Facebook and an ardent supporter of women's workplace empowerment, an issue where the technology and Internet sector is lagging.

By return on invested capital, companies with the highest percentages of women on their boards outperform the more androcentric ones by 66%, according to a study by Catalyst. Yet only 16.3% of board seats in the US are held by women. That compares unfavorably to the still-unequal Scandinavian countries, led by Norway, where women occupy 40.1% of seats.

The market's reaction to the news is positive, but muted. Facebook is up 0.75% this morning ahead of the opening bell.

Twitter: @vincent_trivett
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