European markets cautiously set aside warnings that Russia's conflict with Ukraine was sliding out of control on Monday, as investors focused on the European Central Bank's meeting this week and hopes it will strengthen its stimulus plans. "Naturally, developments between Russia and the Ukraine will be in the cross sights. Ukrainian President Petro Poroshenko warned at the weekend that a "full-scale war" was imminent if Russian troops continued to advance in support of pro-Moscow rebels and U.S. Moscow appeared in no mood to back down however.
Polish manufacturing activity shrank for a second straight month in August and Czech expansion slowed more than expected, adding to signs weaker euro zone economies and crisis in Ukraine are cooling growth in the EU's east. Economies in central Europe have rebounded strongly from a sharp slowdown or even contraction in the past year but are starting to slow, and analysts expect that to continue for the rest of the year even while a longer-term recovery stays on track. Hungary's seasonally-adjusted PMI, calculated using a different methodology, dropped to 51 from 56.6. Central Europe's economies, which share trade links with Russia, are only just beginning to feel the impact of tit-for-tat sanctions between the European Union and Russia over pro-Moscow separatists fighting in Ukraine.
German Finance Minister Wolfgang Schaeuble renewed a call for a core group of European Union countries to move ahead faster with economic and political integration, 20 years after his ground-breaking proposal fell on deaf ears in key partner France. In an article published in the Financial Times on Monday, Schaeuble proposed creating an EU commissioner with the power to reject national budgets that breach the bloc's fiscal rules, and establishing an inner-core parliament for the euro zone. "In order to make progress in all of these areas, we should keep using the approach that proved its mettle back in 1994: to establish cores of co-operation within the EU that enable smaller, willing groups of member states to forge ahead," Schaeuble wrote in the article, co-authored by fellow German Christian Democrat Karl Lamers. They acknowledged that many EU countries remain reticent about closer political union that would involve transferring more sovereignty to Europe.