Angela Merkel was reeling from a series of election losses on Sunday that could be the most serious challenge she has faced to her power in Germany. The vote, on what the German press called “Super Sunday”, was for regional parliaments in three of the country’s federal states.  But the timing meant that it was seen as a virtual referendum on Mrs Merkel’s controversial “open-door” refugee policy. The results could seriously undermine the German chancellor as she tries to persuade EU leaders to agree to a deal with Turkey to resolve the migrant crisis. Mrs Merkel’s Christian Democrat party (CDU) was beaten in its stronghold of Baden-Württemberg for the first time in more than 50 years, according to exit polls...In the western state of Rhineland-Palatinate, it saw a lead of 10 per cent in the polls evaporate in just four months. Most damaging of all for Mrs Merkel, the far-Right Alternative for Germany (AfD) party stormed to its best election results ever on a campaign that focused almost exclusively on an anti-migrant message. In the East German state of Saxony-Anhalt, where the CDU managed to cling on to first place, celebrations were muted as the AfD secures a shock second place with 23 per cent of the vote. The AfD won seats in all three state parliaments and emerged from the night as a political force Mrs Merkel can no longer afford to ignore.  “We have fundamental problems in Germany that led to this election result,” Frauke Petry, the AfD leader said. “We’re seeing above all that voters are turning away in large numbers from the big established parties and voting for us. “They expect us finally to be the opposition that there hasn't been.” Ms Petry caused controversy ahead of the election by calling for police to shoot asylum seekers at the border.  “No question about it, none of the parties in the federal parliament has any reason to be happy about these election results,” Michael Grosse-Brömer, the parliamentary chief whip of Mrs Merkel's CDU, said.

Mario Draghi signaled that the ECB would be moving away from interest rate cuts towards "unconventional" measures in the future. He also said the governing council did not want to send the signal that rates can go into unlimited negative territory.

Negative rates are seen as a way to weaken a currency and help boost inflation, but Draghi's comments have seen the euro rocket today.  Maxime Alimi, Senior Economist at AXA Investment Managers, says the ECB has now all but given up on trying to manipulate the currency in favour of trying to boost growth through QE.  "The ECB no longer counts on a weaker euro to raise inflation, perhaps for fear of a reaction from the Federal Reserve. Therefore, we do not expect a significant depreciation of the euro, going forward", said Alimi.  "Conversely, the interest rate channel and the portfolio rebalancing channel are coming back to the fore. If our assessment is correct, don’t fight the ECB: European peripherals, high yield and equities stand to benefit."

A potential exit of Great Britain from the European Union (Brexit) could affect the exchange rate of the sterling, according to a poll made by Bloomberg, which shows that the currency of this country could drop to 1.35 dollars or even lower, within a week from the vote to leave the EU. Such a level has never been reached since 1985. The Bloomberg analysis was conducted on a sample of 34 economists, and 29 of them anticipate the aforementioned evolution. Also, 23 of the polled economists think that the pound will not recover from the 1.35 level earlier than three months after the Brits' vote on the EU exit, scheduled for June 23rd. Seven of the polled specialists think that the British currency will drop below 1.20 dollars immediately after a vote in favor of the Brexit.   The pound has already lost over 2% in 2016, compared to the currencies of the G10 countries (the Group of the ten most developed countries in the world), as the unequal economic recovery and the increasingly weaker outlook for the hike of the policy rate join the fears of a possible exit of Great Britain from the EU. The depreciation is increasingly pronounced after prime-minister David Cameron announced on Saturday the date of the referendum and some politicians decided to launch campaigns for leaving the EU. "A Brexit vote will affect the pound sterling heavily", said Nick Kounis, head of the macroeconomic research division of "ABN Amro Bank" NV of Amsterdam.   He predicts the pound sterling going below 1.20 dollars a week after a potential vote in favor of the Brexit.  Peter Dixon, an economist with "Commerzbank" AG, the London branch, predicts that the pound sterling will fall to 1.25-1.30 dollars a week after a potential vote in favor of the Brexit.

A recession in Europe could lead to the collapse of the Eurozone, as the single currency would buckle under the political turmoil unleashed by a fresh downturn, a leading investment bank has warned.  In a research note titled "Close to the edge", economists at Swiss bank Credit Suisse warned the fate of monetary union hangs in the balance if Europe's policymakers are unable to ward off another global slump and quell anti-euro populism.  "The viability of the euro is contingent on the current recovery," said Peter Foley at Credit Suisse.  "If the euro area were to relapse back into recession, it is not clear it would endure."  Although the bloc's nascent recovery was likely to persist in the coming months, Credit Suisse said there were worrying signs of deterioration emanating from Europe's economies. These include heightened credit stress in the banking sector and market volatility.    Benoit Cœuré , executive board member at the ECB, said the central bank's policy stance could not "become a source of uncertainty" for expectant markets. "In the still fragile environment we face today, what is essential is that policy works to reduce uncertainty," Mr Cœuré  said on Wednesday.  He admitted that the ECB's move into negative interest rates could have adverse effects on the continent's lenders, hinting policymakers would mitigate the impact of its -0.3pc deposit rate on bank profitability. "We are well aware of this issue. We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel," said Mr Cœuré .

MEPs can claim £120,000 a year in expenses without providing “real proof" of how the money is spent, because EU officials don't want to saddle them with an "administrative burden" which would hamper their freedom, a court heard. EU expenses chief Frank Antoine-Poirel said that only on “very limited occasions” would MEPs be asked for “real proof” of where MEPs allowances ended up. Mr Antoine-Poirel, head of the EU’s Parliamentary Assistance and Members' General Expenditure Unit, admitted he had never seen the bank accounts of long-serving Labour MEP Peter Skinner, who is accused of using his expenses to pay £10,000 to his ex-wife. Skinner, 56, is also alleged to have used some of the cash to repair the gearbox on his ex-wife Julie Skinner's Land Rover Discovery and funded hotel stays, restaurants and jewellery by claiming a maximum £480,000 for support staff over five years. One member of staff, Karen Forbes, was said to have invoiced the former MEP for the South East of England Region, for more than £122,000 in 2005, but worked at Tesco and was actually paid just £525 a month, Southwark Crown Court has heard. Mr Antoine-Poirel, a parliamentary ombudsman tasked with establishing the difference between genuine mistakes and misuse of funds, said: "It would create an administrative burden for members and the consequences on the freedom of actions for the members so we do not want to interfere with their detailed political activities.”

The banks in the Eurozone have done very well in an environment where interest rates are very low, says Benoit Coeure, a member on the board of the European Central Bank (ECB), who adds that their new issues are not caused by the easing of monetary policies.  In his opinion, banks' earnings are low, which diminishes their ability to generate capital, but many of these financial institutions have overcome the impact of the negative interest rates imposed by the Central Bank.  Benoit Coeure also says that the ECB is engaged in ensuring price stability, which sustains bank profitability.  The ECB official said yesterday, in Frankfurt: "Many banks have succeeded in compensating the drop in revenue interest through higher lending volumes, lower interest expenditures, the drop in risk provisions and capital gains".  Coeure's statements seem however seem to minimize the arguments that banks' major problems are caused by non-performing loans, which have nothing to do with the monetary policy. 

"Europe is on the cusp of a largely self-induced humanitarian crisis," UN refugee agency (UNHCR) spokesman Adrian Edwards said on Tuesday. The EU plan for an internal aid mechanism marks a departure for the 28-nation EU, which normally only gives aid to countries outside the bloc, notably in the Middle East and Africa. The EU has an annual aid budget of €1.2 billion for external countries. But the apparent show of European solidarity masks growing criticism of countries that have capped the number of migrants they are willing to let in. European leaders are divided ahead of two summits this month on the migration crisis, with German chancellor Angela Merkel saying that after bailing out debt-hit Greece the country cannot now be allowed to plunge into "chaos". The crisis has also sparked warnings that the EU's Schengen passport-free zone could melt down as more and more states bring back border controls. In a bid to ease the divisions, EU president Donald Tusk is currently touring the Balkan states and Turkey, the main departure point for refugees. Ahead of a crucial EU-Turkey summit on March 7, Mr Tusk said he would press for "a more intensive engagement" from Ankara on a deal signed with the EU in November to limit the flow of refugees.