Economics

Strauss-Kahn must choose: IMF or French politics?

21 May 2010

The IMF's managing director says France shouldn't rush to cut its budget deficit. But it's hard to tell whether he is speaking in his current capacity or as a potential candidate for the French presidency in 2012. He must stop equivocating and clearly state his intentions.

Europe forces global recalculation

20 May 2010

The euro zone's defensive moves have so far exacerbated market panic. Investors are getting burnt. The U.S. and Asia will have to carry global growth and may now have scope to keep rates low for longer. But markets still need reassurance the euro zone isn't about to crumble.

Euro zone should confront D word

20 May 2010

Angela Merkel has some barmy ideas, such as unilateral short selling bans, but her call for a euro zone sovereign insolvency mechanism sounds sensible. For some European politicians, default is anathema. But there are good reasons to put a mechanism in place.

Euro zone needs Estonian policy as well as Estonia

20 May 2010

When the crisis struck in 2008, Estonia adopted tough fiscal policy in the face of sharply contracting GDP and a deep balanceofpayments deficit. The country is now on track to join the troubled euro. It seems other EU states could usefully hire Estonian finance ministers.

Short-selling ban delivers only pyrrhic victories

19 May 2010

Traders have found simple ways of circumventing the unilateral curbs imposed by Germany on some shares, CDS and government bonds. But the restrictions have certainly made investors fearful. What little remained of the feelgood factor from the EU bailout has been squandered.

Merkel should avoid channeling Dick Fuld

19 May 2010

The German chancellor has vowed that Greece will not be Europe s Lehman Brothers. Yet her country s pointless shortsale restrictions are eerily redolent of the paranoid campaign Lehman s CEO waged from his 7th Avenue aerie. Fighting the market won t solve Europe s woes.

China and U.S. even further apart on big issues

19 May 2010

Commerce Secretary Gary Locke has wisely focused on uncontroversial cleanenergy exports in his first trade mission to China. But on China's currency and trade, the two nations are far apart. Thanks to the euro crisis, the consensus that seemed likely in April now looks doubtful.

Shorting ban knocks trust in German financials

19 May 2010

The ban on naked shortselling of the country's ten largest banks and insurers has triggered a selloff. Firstquarter results suggest German financials are in decent shape, while the EU bailout also helped. But Berlin's move raises fears it knows something the market doesn't.

German shorts ban compromises EU regulatory effort

19 May 2010

EU commissioner Michel Barnier had resisted pressure from France and Germany for swift bans on naked CDS. Germany's solo ban has regrettably undermined his efforts at thoughtful regulation, as others may feel compelled to follow suit. Barnier's leadership skills face a test.

U.S. deflation threat not yet fully neutralized

19 May 2010

The drop in U.S. CPI in April gives the Federal Reserve cover for keeping interest rates low. And even if it s a blip, the lowest annual rise in core CPI in more than 40 years could put deflation fears recently forgotten back in investors minds.

Germany’s short-selling ban misses the point

18 May 2010

The plan to stop naked shorting of some financial stocks and European government bonds and CDS may score political points. But it sows confusion while not tackling the causes of Europe s financial woes. Besides, it s hard to see what Germany can achieve by acting alone.

IMF needs more well-endowed sugar daddies

18 May 2010

U.S. Senate plans to curb foreign bailouts miss the point. The fund always gets its money back. The problem is its overreliance on the U.S. and troubled Western Europe for funding. Leaning mostly on indebted nations hardly seems sustainable. The IMF needs more savers.

UK inflation jump puts BoE credibility on the line

18 May 2010

Britain's cost of living index has had its biggest rise since 1991. With the government making cuts and the euro zone in crisis, the BoE has many reasons why inflation could fall back to target. But its record of persistent overoptimism is grounds for increasing scepticism.

GOME sentence plays to China’s politics of riches

18 May 2010

Huang Guangyu, once China's richest man, got 14 years and a big fine for insider trading and bribery. That is in line with recent punishments for corporate corruption. But done sparingly, bashing greed also has political uses in fastgrowing countries with yawning wealth gaps.

Search for safe havens increasingly desperate

17 May 2010

Net foreign investment flows to longterm U.S. securities were $141 bln in March, the most since records began, with two thirds going into Treasuries. Rather than a touching sign of confidence in Uncle Sam, this may derive from a simple consideration: there s nowhere else to go.

Occasional flash crash is useful reminder

17 May 2010

It makes sense to coordinate circuitbreakers and other safety switches across trading venues. But the goal shouldn t be to eliminate sudden drops. Markets are volatile, and smart traders build in a margin of safety. That s a message reinforced by the odd surprise.

Bond saturated world braces for austerity

13 May 2010

Greece is sending out shockwaves. Gordon Brown, the advocate of Keynesian fiscal expansion, has fallen. Bond issuance has become excessive. Investors are pulling back and governments must cut back. But Asian and US growth should keep away the depression of which Brown warned.

Europe’s crisis needn’t halt yuan reform

11 May 2010

China's politicians may worry that Greek woes will turn into trade pain. But a rising dollar and lull in speculative money flows may help ease the transition. Whatever Europe's problems, mounting inflation and pressure from the U.S. may mean China can't stall much longer.

Market turmoil recalls 1987’s electric nightmare

7 May 2010

The finger is pointing at computerdriven trading after Thursday's brief 9 pct dive in U.S. stocks. So much for the lessons of Black Monday two decades ago, when automatic trading exacerbated panic selling, and for claims that highly automated markets smooth volatility.

Dangerous moment doesn’t have to spell disaster

7 May 2010

Bad news seems to be everywhere: fat fingers on Wall St, growing contagion in the euro zone, renewed stress in the interbank markets and an inconclusive UK election. Toxic feedback loops heighten the risk. But decisive leadership can still stop the rot.