Economics

Europe’s promises won’t make peripheral debt safer

16 Nov 2010

EU leaders have tried to calm markets by stating that a new default mechanism for sovereign bonds won't affect existing investors. But that won't make it any easier for Greece or Ireland to reduce their debt. And launching the new bailout regime in 2013 could make life harder.

Markets won’t force California’s budget hand

16 Nov 2010

When Ireland and Greece run big deficits, debt investors get angry. But when California says it will need more than $20 bln to balance its budget, bond buyers stay cool. They re not blind to the Golden State s problems, but they re understandably confident they ll get paid back.

Spain should prepare a back-up fiscal plan

16 Nov 2010

Madrid says it doesn't need a Plan B to get its deficit under control. The risk of divulging one is to acknowledge that Plan A isn't enough. But given the current bond market turmoil, and the need for more realistic economic forecasts, it may eventually not have a choice.

Hermitage saga shows Russia can’t shake corruption

16 Nov 2010

Sergei Magnitsky, a lawyer for hedge fund Hermitage Capital, died a year ago in custody, sparking international outrage. Now the Russian police posthumously accuse him of orchestrating the $230 million fraud he unearthed. Russia's corruption culture is alive and well.

UK’s interest justifies Irish bailout contribution

16 Nov 2010

Taking part in a bailout of failed Irish banks and a tottering government might not seem like a good use of UK taxpayers' money. But the previous chancellor's commitments are cheap at the price, given Ireland's significance as a trading partner and existing UK bank exposure.

Europe back to bailout poker game

15 Nov 2010

The EU is pressing the Irish to take financial aid the country says it doesn't need. It looks like a reverse scenario from Germanled Europe's tough stand towards Greece. But now, as then, the question is whether Europe can convince the markets it can avoid a major meltdown.

Irish bank-focused bailout idea not a panacea

15 Nov 2010

A rescue that would focus on Ireland's ailing lenders rather than its whole economy might be less humiliating for Dublin. But even if EU leaders agree to pump money into the banks, they will still demand a pound of flesh. And it may not solve all of Ireland's problems.

Unviable Ireland made worse by crisis resolution

12 Nov 2010

Ireland's yields have spiked for two reasons. The economy needs help and European talk of a crisis resolution mechanism has frightened investors. The EU is changing its tone, but Ireland will find it harder to improve its numbers. Europe is struggling with its periphery crisis.

Seoul G20 ends in encouraging failure

12 Nov 2010

Global leaders made no progress on big imbalances. Cultural and ideological rifts between China and the U.S. run too deep. But that is exactly why the G20 should continue. China needs the uncomfortable scrutiny and its education in superpower diplomacy will benefit the world.

Bank confidence critical for Irish survival

11 Nov 2010

If Ireland's lenders get into further trouble they could drag the country down. Bank of Ireland and AIB appear to have enough collateral to keep borrowing from the ECB, and enough capital to absorb higher mortgage losses. But if depositors flee, crisis could quickly follow.

Peru a worthy borrower of ultra-long debt

11 Nov 2010

While Peru is poorer than Mexico or Goldman Sachs, its economy is more balanced, it has less debt and its growth prospects are better. Global mining companies already take the country seriously; its successful $2.5 bln financing suggests debt investors are coming to do so too.

China must grasp the inflationary nettle

11 Nov 2010

Consumer prices rose 4.4 percent in October, yearonyear, close to warning levels. There are two ways to deal with that: slow down domestic activity, and let the currency appreciate. The longer Beijing shies away from both, the worse the sting will be.

Equity prices are higher, but still not high

11 Nov 2010

Q3 earnings and QE liquidity are boosting prices. But unlike commodities and bonds, share valuations are not stretched. Since equities also give insurance for investors who fear inflation, shares may yet climb further.

New problem for G20 leaders: wobbly currencies

11 Nov 2010

Western leaders of the G20 are focusing on the right value of currencies. But their disagreements cause an extra problem: volatility. Uncertainty raises hedging costs, and makes companies less willing to invest. Ending the currency tug of war should be a priority.

U.S. debt panel’s good sense upsets left and right

10 Nov 2010

Uncle Sam would tax somewhat more and spend a whole lot less if the cochairs of Obama s deficit commission get their way. Critics on both ends of the political spectrum will carp but they would struggle to devise a better way to tackle America s longterm fiscal problems.

Debt tax perk may be crisis’ biggest missed chance

10 Nov 2010

As the G20 prepares to endorse Basel III, voices are again being raised against the absurdity of tax systems that encourage banks to load themselves up with debt. If governments are sincere about reform, a fiscal push is urgently needed.

Dollar rally has further to run

10 Nov 2010

Far from collapsing on QE2, the greenback has bounced. A sick euro zone favours the dollar over the single currency. A wave of risk aversion is possible. Equally, improving U.S. economic data raises the chances of a broad dollar recovery.

Technical ripple undermines Fed’s latest easing

10 Nov 2010

The U.S. central bank's decision to concentrate its $900 billion buying power on Treasuries maturing in seven years or less has made the controversial quantitative easing policy harder to defend. Longterm bond yields have jumped, giving inflation hawks even more to squawk about.

Yuan’s surprise rise fails to convince

9 Nov 2010

The 0.5 pct rise in China's currency is the most since reform was announced in June. That looks like a preG20 sop. But this is small beer. Though the yuan is up nearly 3 pct versus the dollar since June, in tradeweighted terms it is down 5 pct.

India’s quiet support of QE2 shouldn’t surprise

9 Nov 2010

The prime minister s qualified support for the Fed s attempt at monetary stimulus reflects its own position. India has a large budget deficit, negative real interest rates and an ongoing payments deficit. Like the U.S., India wants cheap global money to keep its party going.