Economics

Friendly Cameron and King get mix right for now

30 Jun 2010

Is Mervyn King, the Bank of England governor, too friendly with the new government? His inflation critics may think so. But massive fiscal tightening threatens higher unemployment and depressed wages. Loose money looks more than a favour. And the UK's policy mix looks right.

Swiss accept that they are frankly strong

30 Jun 2010

The franc keeps rising against the euro and the Swiss central bank has stopped resisting. It can probably afford to. Money expansion seems to have done its job. The economy is growing. Deflation risk has eased. Property prices are simmering. The Swiss safe haven looks just that.

EU’s stealth bill gets tough on bank bonuses

30 Jun 2010

The European Union plans to ban banks from paying more than 30 pct of bonuses in cash, and cap payouts as a proportion of salary. The littlenoticed draft law is in line with G20 principles, but is much tougher than U.S. rules. Some provisions may also produce perverse results.

Democrats shouldn’t count on Okun jobs surprise

30 Jun 2010

High U.S. unemployment hasn't provoked the White House into proposing a pricey plan to create jobs. One reason is Okun's Law, which predicts a jobs surge as growth picks up. Team Obama has been counting on the law working in this recovery. It's starting to look like a bad bet.

Spain’s energy shock redefines regulatory risk

29 Jun 2010

Madrid has scrapped a sensible hike in retail electricity pricing and launched a shock review of Spain's energy sector. This structurally flawed market certainly needs reform. But arbitrary action adds to uncertainty and deters equally needed investors and capital.

Greece has little to gain from bond gamble

28 Jun 2010

The plan to issue debt next month looks risky. Greece can count on its ECBfunded domestic banks to mop up the shorter maturities on offer. But if the deal gets away, it won t be proof that Greece has regained market confidence. And if it flops, it will be another big setback.

G20 makes progress by standing still

28 Jun 2010

The Toronto summit lived down to carefully managed modest expectations. A firm agreement to disagree and delay may not sound like much. But global goodwill is withstanding a tepid recovery, market pressure and fiscal strain. If there is another crisis, the concord could be vital.

ECB serving as ATM for euro zone periphery

28 Jun 2010

The central bank's additional liquidity has largely gone to banks in Greece, Portugal, Ireland and Spain. The official support will last as long as markets stay closed. For the Portuguese, that could be years. The region could end up sharing the costs of the profligacy of a few.

Weak U.S. recovery now best hope

28 Jun 2010

Rather than a bounce, most recent data indicate a slowing U.S. recovery, while the end of monetary, fiscal and housing stimulus also presages weakness. A doubledip is not imminent, but deep underlying problems mean low growth and perhaps inflation in the second half of 2010.

English individualism yields to German teamwork

28 Jun 2010

OK, so football isn't life. But the English football failure despite worldclass talent has the feel of a model gone wrong. Germany's players may yet fail, but the Rhenish system of cooperation has served them well. There may be a lesson here for the UK government.

Good economy didn’t save Australia’s Rudd

24 Jun 2010

The prime minister was forced to fall on his sword even though the global recession passed Australia by. His lack of charisma played a role, as did botched policies and a divided economy. The miners will be happy to deal with someone new, but their taxes are still likely to rise.

Keynesian-austerity dilemma can’t be resolved

24 Jun 2010

Last year the G20 went for Keynesian stimulus, but excessive debt now makes that unsustainable. This weekend in Toronto, most nations apart from America will advocate orthodox deficitcutting, but that will damage growth. There are no practical ways to square this circle.

Tax doesn’t matter much if you’re rich enough

23 Jun 2010

Wouldbe billionaires often say they're discouraged by high tax rates. That's not what the latest World Wealth Report shows. Low tax countries don't always have many very rich people. The recipe for growing millionaires has two economic ingredients: high savings rates and time.

Cutting leaders must be bold, fair – and lucky

23 Jun 2010

The UK government, like its counterparts in troubled euro zone countries, is cutting spending hard. Can cutting leaders survive and be appreciated? History's lessons are mixed. Fairness helps. Policies that are quick to work help even more. Luck plays its part.

UK budget impresses now – risks come later

22 Jun 2010

The coalition's first budget is tough in roughly the right places nonessential spending, welfare benefits and higher VAT. Still, some departments face huge cuts, government employment will suffer and growth forecasts are questionable. But for now, markets will be impressed.

Russia looks for profit from U.S. policy reset

22 Jun 2010

Obama decided to make friends with Russia around the same time Russia moved its foreign policy in a more proWestern direction. President Medvedev's visit is the latest charm offensive. But to attract much needed U.S. technology, Russia will need profound domestic reforms.

UK capital gains taxes move in right direction

22 Jun 2010

The current rules, imposed in a panic by Labour, have been a charter for tax avoidance. The new coalition's new regime will close some loopholes and narrow the gap between income and capital gains taxes. There are still some disappointing features, but it's a lot fairer.

ECB shows benefits and limits of its powers

22 Jun 2010

Europe's central bank is to end its first experiment in market intervention by wrapping up 60 bln euros of covered bond purchases. Recent record issuance of this type of bank debt proves the ECB's success in reviving a moribund market. Still, this market isn't open to all comers.

UK bank levy needs global following to succeed

22 Jun 2010

The new government's bank levy will raise up to 2.5 bln pounds a year. The tax rightly targets shortterm wholesale funding. Support from Germany and France means the idea may yet catch on. But if others don't follow Britain's lead, the tax will drive business offshore.

Bonds-for-tax could help Japan out of a hole

22 Jun 2010

Funding big deficits with bond issues has worked so far, but will get harder as Japan ages. Prime Minister Kan's plan to hike taxes instead, starting with VAT, looks more sustainable. Such a transition involves pain, but it will spare Japan greater discomfort later.