Euro Zone

Hugo Dixon: UK election poses complex EU exit risk

27 Apr 2015

The chance of Britain quitting the EU will depend on the outcome of next month’s general election. But the question is unlikely to be simple given the probable involvement of the SNP or the Lib Dems in supporting a government led by either Labour or the Conservatives.

French investment banking has less than meets eye

23 Apr 2015

Returns at BNP Paribas’ and Societe Generale’s trading and advisory businesses are better than peers. But the pair’s divisions carry less equity against gross assets than rivals. Before dashing in, investors should consider what the return would be with greater leverage restraint.

Political wishes can’t stop euro fall

23 Apr 2015

French and German ministers hint that they would prefer the single currency to stabilise after its long export-friendly drop. Currency markets sometimes listen to central bankers but generally ignore politicians. Gloom about the euro is pervasive. Further losses are likely.

Greek bargaining position stronger than it looks

22 Apr 2015

Athens may well not repay its ECB debt by July. But things would only get really nasty – via capital controls and bust Greek banks – if member states deem this a hard default. If they choose to, Greek leader Alexis Tsipras could blame them – and lead his country out of the euro. 

Euro zone needs to reinforce its founding myth

21 Apr 2015

The single currency is supposed to be irreversible. Yet European policymakers regularly conjure up the risks of Greece’s euro exit. No wonder potential Greek IOUs elicit vastly divergent reactions to actual Californian ones. This difference suggests how the euro zone can change.

Euro zone bond analysts live in brave new world

20 Apr 2015

The old skills are almost useless. Chart patterns tell no tales in uncharted territory. And forget about inflation, growth and nebulous concepts like term premia. Just study politics and ECB buying. It’s an easier life for specialists, but this market is riskier for the economy.

Review: Some of what is wrong with economics

17 Apr 2015

Meghnad Desai mocks his fellow economists for not seeing trouble ahead during the early 2000s credit bubble. The retired professor wisely calls for more study of history and a less narrow perspective, but he is still too conventional. He ignores the crucial financial cycle.

Europe’s credit boom locks in mediocre returns

15 Apr 2015

Investors are throwing money at European companies. Carrefour and Danone paid little over 1 pct a year to borrow for a decade; Novartis got 20-year funds at similar levels. A Breakingviews calculator shows how bond buyers’ generosity could backfire.

Edward Hadas: Don’t moan about secular stagnation

15 Apr 2015

The idea that economic growth has shifted stubbornly downwards has gained currency. But flawed measurements and demographic shifts undermine the diagnosis. In any case it’s better to address specific problems than to predict doom.

Tactical euro zone bond issuance is welcome

15 Apr 2015

Some euro zone governments are issuing a lot more long-dated debt to lock in low rates. The opportunistic supply switch may explain why ECB bond-buying isn’t pushing some peripheral countries’ yields even lower. If so, the extra bit of interest expense is a price worth paying. 

Europe’s lending boom shows power and limits of QE

14 Apr 2015

The ECB’s bank survey shows how loose monetary policy is boosting demand for credit in Europe, helping small companies. That is good for growth. Yet the results are uneven, and investment is not driving demand. The central bank’s policies work, but governments need to do more.

German bonds are becoming like gold dust

14 Apr 2015

They’re scarce, and you increasingly have to pay to own them. The benchmark 10-year Bund may soon go negative. But like gold, it might be a good deal. The market supply is shrinking, thanks to strong German government finances and ECB buying. This paper could prove precious.

Europe’s scars from Greece would run deep

7 Apr 2015

Warren Buffett is among those who reckon a Greek exit could make the euro zone stronger. Losses are manageable, other countries won’t follow immediately, and the shock may even prompt excess debt to be tackled. But political and economic tensions would be dangerously magnified.

Hugo Dixon: Greece has two weeks to produce red meat

7 Apr 2015

The default scenario is off the table for the time being after Athens confirmed it would meet a payment to the IMF on April 9. But it will probably be back by late April if Greece doesn’t come up with some serious reforms on pensions, tax and banking.

Greece comes kicking and screaming to reform table

2 Apr 2015

The Syriza government’s latest reform proposals include some concessions to its public creditors. The plan still lacks detail, and reneges on past promises. The government is fiddling while Athens burns, and the risk of an accidental euro zone exit is rising.

Central banks won’t prop up the euro

1 Apr 2015

The single currency’s share of global foreign exchange reserves is at a 12-year low. Reserve managers haven’t bought euros to compensate for the fall in its value. Central banks’ lack of commitment to balanced forex portfolios leaves the euro free to fall further.

Draghi’s QE is doing all it can for securitisation

31 Mar 2015

The ECB chief’s bid to boost asset-backed security markets has produced few new deals, and its purchase programme is small. But the falling cost of issuance is tangible enough, and regulatory hurdles are lifting. Besides, politics preclude Mario Draghi from buying riskier assets.

Japan shows euro zone the limits of bond-buying

31 Mar 2015

The European Central Bank has barely begun buying government debt. The Japanese experience of massive purchases suggests low expectations are warranted. The Bank of Japan has yet to revive inflation. And it seems even to have lost the power to depress the yen and bond yields.

BoE will test banks for deflation ECB didn’t see

30 Mar 2015

The darkest scenario of British banks’ annual stress tests sees prices fall for over a year at home, and nearly four in the euro zone. Last year the ECB didn’t factor in deflation risk at all. The Bank of England is obviously freer to consider the possibility of its own failure.

Hugo Dixon: Tsipras needs rupture with far left, not Brussels

30 Mar 2015

Even if Greece avoids imminent default, its prime minister will have to break with radical allies before Athens’ position in the euro zone is secure. It is not clear he has the courage to do so. But such a move would make far more sense than a break with euro creditors.