Euro Zone

ECB concedes oil and inflation do mix

13 Jan 2016

The central bank’s chief economist, Peter Praet, reckons the impact of falling oil prices on inflation may not be transient. That fact is a nightmare for rate-setters, who don’t control energy costs. Financial markets got this message some while ago. 

Guest view: Euro zone needs workable banking union

12 Jan 2016

The 19 member states have so far failed to put in place a full regime of bank oversight, argues former Citi exec William Rhodes. As U.S. and euro zone interest rate policies diverge, this is a big risk. To complete banking union, agreement on proper deposit insurance is a must.

New Greek opposition leader may cause instability

11 Jan 2016

The election of Mitsotakis, a liberal reformer, as leader of the centre-right New Democracy party means PM Tsipras now faces a credible opponent. While this is in Greece’s long-term interests, it raises the risk of short-term clashes between Athens and its euro zone creditors.

Portugal’s creditor-mugging may prompt EU copycats

7 Jan 2016

Lisbon’s decision to trash bondholders of Novo Banco rode roughshod over creditors’ claims for equal treatment. The region’s new resolution regime is meant to be clearer. Yet it too leaves room for more bad behaviour. 

Europe’s bank pay rules are dispiriting

21 Dec 2015

Regulators want the region’s bonus cap to apply to all lenders. There’s a token concession: small banks and fund managers they own may get waivers for variable compensation that’s deferred or paid in shares. But firms presenting no systemic risk will have less cost flexibility.

Mario Draghi is central banking’s tragic hero

3 Dec 2015

Despite new easing measures, the ECB chief’s fight to revive inflation looks doomed. Forces beyond his control, such as oil prices, are too strong. Markets are moving against him. Draghi is admirably determined, but will probably be remembered for trying rather than succeeding.

Church of England could guide Vatican audit

2 Dec 2015

Pope Francis wants to appoint an external auditor of the Vatican’s wealth. About time too. Valuing assets such as the Sistine Chapel will prove an imperfect science. Yet the example given by the Church of England suggests that Good Book values may flow from good bookkeeping.

ECB has bright idea for targeted bank-bashing

26 Nov 2015

Imposing a staggered penalty on banks that hoard cash is one of many ways to ease policy being discussed by the European Central Bank. Such levies have drawbacks. But at least a split-level charge would encourage the biggest hoarders to boost cross-border lending.

Investors get too comfy over US-euro divergence

19 Nov 2015

Twin the prospect of higher U.S. policy rates with the chance of more euro zone easing and the result is eye-catching divergences in currency and interest rate markets. The problem is, such price trends are vulnerable to setbacks even if rate-setters do what’s expected of them. 

France can afford budget-busting security spend

17 Nov 2015

Prime Minister Manuel Valls says the deficit is bound to miss EU targets as security spending rises after the Paris attacks. Brussels is unlikely to kick up a fuss over this exceptional overspending. Nor will investors, who are used to serial French fiscal slippage.

Cutting Portugal’s lifeline would be act of mercy

11 Nov 2015

The state’s access to European Central Bank bond-buying hangs on the opinion of Canadian rating firm DBRS. A downgrade could make it ineligible, punishing Portuguese bonds. A messy compromise could hurt ECB independence. Tough love might actually help.

Regional banks grab hold of repo grenade

10 Nov 2015

Wells Fargo, Nordea and Sumitomo Mitsui are bulking up in a form of short-term collateralised lending, as big investment banks pull back. Yet buoyant “repo” financing may carry hidden risks. The market played a central role in the financial crisis - and much of it remains opaque.

Hefty ECB rate cut might do more harm than good

10 Nov 2015

Some European Central Bank policymakers want to push the floor for policy rates deeper into negative territory. This may depress the euro and bond yields for a while. But Nordic evidence of the price banks pay when rates are so low suggests an outsized cut may be self-defeating.

Greek banks get marginally more investable

2 Nov 2015

ECB stress tests revealed a 14 bln euro capital hole. The tests were doubly tough: the pass mark was high, and the state will not prevent shareholder dilution. Yet banks are stuck with bad loans and the economic outlook is unclear. Greek bank equity is still a bet for the brave. 

Dixon: Tsipras’ biggest stress tests yet to come

2 Nov 2015

A central bank verdict that the top Greek lenders must raise only 14.4 billion euros is welcome news for the prime minister. But he has to implement more tough measures before he can secure debt relief from his euro zone creditors. Until then, he faces political risks.

Traders aren’t buying the idea of a euro rout

29 Oct 2015

Hints of monetary easing in the euro zone and the chance of a December tightening in the United States have pushed the currency down against the dollar. But market disconnects suggest traders are wary of betting against the euro too aggressively. Their caution is justified. 

Portugal may be a test for centripetal politics

21 Oct 2015

The opposition Socialists are willing to team up with parties further to the left in order to take power. Markets may have been naive to underestimate politicians’ ambitions. Greece sends a reassuring message that power can bring even idealist firebrands closer to the centre.  

Merkel deserves to survive migrant crisis

20 Oct 2015

The German chancellor’s welcome to refugees is backfiring at home. Critics abound in her own party, her popularity is low and right-wing populists are flourishing. Yet Merkel has two things in her favour: the German economy looks solid and her opponents lack a credible leader.

Euro zone rediscovers sloppy fiscal policy

15 Oct 2015

Deficits are creeping up in Spain, Italy and even growth star Ireland. Reasons include easy money and pre-election spending. As yet, the gaps aren’t dangerously big. What’s more worrying is poor spending decisions, slowing reforms and fiscal dissonance between member states. 

How capital union can ease EU banks’ great divide

6 Oct 2015

Europe’s proposals for a capital markets union are a boon for Spanish and Italian lenders. Banks investing in asset-backed debt needn’t use penal rating agency grades to measure capital. That should mean more equal funding for banks across Europe.