Euro Zone

Germany’s euro-bond allergy will be hard to cure

13 Jun 2017

France’s pro-European president, Emmanuel Macron, has given new hope to advocates of joint euro zone debt. But expect Teutonic resistance. Europe’s biggest economy is loath to give an implicit bailout guarantee to its own regions so will hardly extend one to other countries.

Europe risks overindulging in Brexit schadenfreude

9 Jun 2017

The election leaves Brussels without a stable partner in Brexit talks. Yet EU leaders should be pleased that voters did not reward Theresa May’s immigration views, or unite behind a hard exit. Sticking to a tight timeframe and big bill could squander chances of a compromise.

Spanish bank rescue poses several big questions

8 Jun 2017

Seizing Banco Popular and selling it to Santander averted a panic without a bailout. But it’s not clear how regulators calculated the hole on the lender’s balance sheet, or why they previously deemed it solvent. Investors need answers to have faith in Europe’s resolution regime.

Europe is a fertile petri dish for GDP-linked debt

6 Jun 2017

Linking national debt payments to economic performance could help countries cope with downturns. There are many obstacles. Bad governments might fiddle statistics; good ones may be reluctant to pay a premium for flexibility. Even so, the euro zone is a good place to test the idea.

Spanish bank mess could make or break CoCos

1 Jun 2017

Banco Popular’s contingent capital bonds have collapsed in price, for fear they will be converted into equity. If they do so without causing chaos, it would show that CoCos are a viable instrument in a real-world bank rescue. A failure to trigger would confirm the opposite.

Euro zone “safe” bonds would be anything but

31 May 2017

The European Commission has suggested creating low-risk securities by pooling sovereign bonds. The idea is to reduce banks’ exposure to governments. But risks would still be interconnected. Without a common tax base and joint liability, no pan-euro zone debt can be truly secure.

Where to put Europe’s bank regulator? Try Bulgaria

26 May 2017

Brussels has invited member states to bid to host the European Banking Authority when its current host, Britain, quits the EU. The EBA hasn’t exactly dazzled in its handling of bank stress tests. But it could be a decent trophy for a non-euro country that feels unloved by the bloc.

Euro zone bonds are taboo worth breaking

17 May 2017

Spain wants the bloc’s 19 governments to pool their debt. That idea is likely to be shunned by Germany. Yet mutualisation is happening anyway through bailouts and central bank largesse, and countries are less profligate than they were. Common bonds needn’t mean wayward spending.

Macron faces stronger Merkel after state election

15 May 2017

France’s new president needs German support for his euro zone reform ideas. Angela Merkel’s challenger Martin Schulz is more supportive of tighter fiscal integration and more investment. The triumph for Merkel’s party in a regional poll suggests any changes will need her consent.

Make Britain’s Brexit bill performance-related

3 May 2017

The EU may demand 100 bln euros from the UK for leaving the bloc. Some Britons want to pay nothing. Investment bankers ease impasses between companies by making part of the cost contingent on future performance. Linking the bill to UK GDP might enable both sides to claim victory.

French savers are a good bulwark against Le Pen

3 May 2017

Marine Le Pen’s anti-euro rhetoric will be a liability in Sunday’s election. Some undecided voters may share the far-right leader’s distrust of the EU. But ditching the single currency would be punitive for a country with the euro zone’s third-highest savings rate.

EU clearing spat epitomises perils of hard Brexit

2 May 2017

Brussels may try to restrict euro-denominated clearing in the UK, a report says. European regulators have long fretted over the fact that most of it occurs outside the euro area. A compromise is more than possible – but is harder to achieve if Britain leaves the single market.

For credit, ECB is more perilous than Le Pen

27 Apr 2017

The dwindling likelihood of far-right Marine Le Pen becoming French president has sent the cost of borrowing for risky companies to near-record lows. A correction could come once the European Central Bank withdraws support for bond markets – which is more likely if Le Pen loses.

Economic heresy is real winner in French election

20 Apr 2017

Investors are nervous the presidential contest will be a choice between far-right Marine Le Pen and hard-left rival Jean-Luc Melenchon. That’s unlikely. Still, candidates who are blasé about debt and hostile to the EU could get two-fifths of the vote. Their ideas may catch on.

Iceland needs euro peg like cod needs bicycle

4 Apr 2017

The North Atlantic state’s finance minister suggests fixing the crown’s value to its euro zone peer. Iceland’s economy could use cooling. But its volatility means that focusing attention on inflows – or even pegging to a more appropriate currency – makes more sense.

Dixon: Start preparing for fourth Greek bailout

3 Apr 2017

Despite a last-minute wrangle over pensions, Greece is likely to get the next chunk of the money due under its current bailout plan. But this will only buy Athens time until the middle of 2018. After that, a new programme, and more fraught negotiations, will probably be needed.

German voters deal early blow to upstart Schulz

27 Mar 2017

The small state of Saarland backed Chancellor Angela Merkel’s CDU, while the SPD, led by the charismatic Martin Schulz, did less well than expected. Voters may tire of Merkel after 12 years, but seem inclined to prefer her stable, predictable government over the alternative.

France’s Macron passes first of three big tests

21 Mar 2017

The independent presidential hopeful was, according to a poll, the most convincing candidate in a debate where he had the most to lose. His next challenge is to win the election. Even if he does, legislative ballots will decide whether the ex-banker can deliver promised reforms.

Ireland will struggle to recoup AIB bailout costs

20 Mar 2017

The country spent 20.8 bln euros rescuing the lender, and has so far got 6.6 bln euros back. A forthcoming listing could, under optimistic assumptions, raise the rest. The staggered nature of the sale, economic uncertainties and the need for a discount point the other way.

Bad bank is poor solution for Europe’s dud loans

14 Mar 2017

Policymakers have called for a pan-European fund to soak up the region’s dud assets. But the record for such schemes is mixed, and hard to tailor to Europe’s diverse problems. The risk is that it becomes a backdoor bailout. Governments would be better off fixing bankruptcy laws.