Euro Zone

Europe’s high-yield boom rewrites the rulebook

24 Feb 2015

This is a seller’s market, and one with a short history, so deal structures are less fixed than they are Stateside. Yields are already slim. Now borrowers and the buyout firms behind them are pushing bolder deal terms. That makes the risk-reward tradeoff for buyers even worse.

Investor tolerance for low bond yields has limits

23 Feb 2015

Economic fundamentals can’t fully explain why U.S. and UK yields have risen sharply, decoupling from German ones. Perhaps investors are finally tiring of meagre returns. If so, planned ECB asset purchases may only cap euro zone yields, rather than driving them down much further.

EU capital markets union is still just a slogan

23 Feb 2015

For non-bank finance to flow, the single market needs cross-border insolvency laws and tax incentives for investment in SMEs. Securitisation cheerleading aside, these key barriers have yet to be tackled. They will have to be if capital markets union is to get off the ground. 

Hugo Dixon: Time for Alexis Tsipras to keep his nerve

21 Feb 2015

The new Greek PM has crossed a Rubicon in asking for an extension to the country’s hated bailout programme while abandoning many election promises. Tsipras should realise there is no turning back. But he can snatch victory from defeat if he embraces radical reforms with vigour.

Greek wordplay paves way for bigger U-turn

19 Feb 2015

Greece’s leader Alexis Tsipras has made his first concession. His government promises to extend the bailout with European creditors and accept temporary troika supervision. Yet the wording is nebulous and commitment to reforms weak. He will need to give more ground.

Edward Hadas: What Greece teaches emerging markets

18 Feb 2015

Forget the crisis. The euro is almost irrelevant to the serious developing economy issues which face Athens: weak institutions, dysfunctional politics and excessive capital flows. As Greece shows, outsiders can help or hurt, but these problems are ultimately domestic.

Investors still bet on a rational Greek outcome

17 Feb 2015

The market impact of Greek bailout talks breaking down has been subdued. The history of euro zone negotiations points to last-minute compromise, as does economic logic. The danger is that markets are allowing financial hope to trump political reality.

Hugo Dixon: Greece desperately needs quick fix

16 Feb 2015

Time is running short. A deal is needed in the next few days to stop Athens going bust. That will be, at best, a short-term patch-up while a long-term programme is worked out. Compromise is needed by both Greece and its euro zone creditors to avoid a disaster. It won’t be easy.

Capital controls an unpalatable option for Athens

10 Feb 2015

The risk of a Greek euro exit increases the pressure for capital controls. The policy did less harm than expected in the Cyprus crisis, and would buy time for Athens and its international creditors. The snag is that Greece’s position is weaker, and the politics more toxic.

Hugo Dixon: Greek euro exit will be hard to stop

9 Feb 2015

After Greek PM Alexis Tsipras’ defiant speech to parliament, it is difficult to see how Athens can avoid running out of money and imposing capital controls within a few weeks. Unless that perspective provokes a change of heart, Greece may soon have to bring back the drachma.

Spain’s recovery yet to impress Spaniards

6 Feb 2015

The EU lifted its growth forecast for the country to 2.3 pct in 2015, ahead of the region’s average. Low oil prices, the weak euro and tax cuts mean Spain could do even better. But voters are angry about corruption and unemployment - making politics and policy unpredictable.

ECB’s Greek bank warning stays within reason

5 Feb 2015

The decision to restrict Greek lenders’ liquidity unsubtly hints that Athens should tone down its anti-bailout rhetoric. The ECB may have large discretionary powers – but so far remains within its remit. As previous examples have shown, the meddling could have been worse. 

Edward Hadas: The redundant fictions of Greek debt

4 Feb 2015

The new Athens government wants a deal with its reluctant creditors. The debate is poisoned by false claims about writedowns and moral obligation. Everyone twists the truth about how debt works and how economic pain is shared. Such fictions were helpful once – but no more.

Market calm sends wrong signals on Grexit

3 Feb 2015

Bonds issued by the euro zone’s weaker nations have been immune to the Greek crisis. The European Central Bank’s new quantitative easing may limit the fallout for now. Yet Europe’s crisis defences aren’t perfect, and the trauma from a Greek exit would be serious. 

Radical Greek finance minister sounds sensible

3 Feb 2015

Yanis Varoufakis dropped calls for an explicit debt haircut and made plausible proposals on debt and deficits. The “erratic Marxist” is growing into the job. Still, investors and foreign politicians will take some persuading that his government can deliver major economic reforms.

Hugo Dixon: Give Greece’s Alexis Tsipras time

3 Feb 2015

If the Greek prime minister is backed into a corner, the chances of Grexit and contagion will rise. If he is given time, there’s less risk of Athens quitting the euro. And even if Greece leaves, delay will make it easier to contain the political and financial backlash.

Hugo Dixon: Renzi still living on borrowed time

2 Feb 2015

The Italian prime minister did well to secure the election of a president against the wishes of his quasi-partner, Silvio Berlusconi. Matteo Renzi’s victory could allow him to accelerate reforms. He mustn’t waste the chance. Italy’s serious problems have not gone away.

ECB-induced distortions sprout in debt markets

29 Jan 2015

Mario Draghi’s asset-purchase plans are warping bond markets. The most obvious and benign consequence is a drop in yields. But there are also insidious effects. Investors shun anything the ECB won’t buy. And market liquidity will become patchier as the programme progresses. 

Rob Cox: Podemos can improve Spanish capitalism

29 Jan 2015

After Syriza’s victory in Greece, investors are fretting that Spain’s “We Can” party could derail reform plans and fiscal discipline. They needn’t worry. The Podemos target is the demon of corruption. Even if the movement has already peaked, it has done the country a service.

Edward Hadas: Markets can prosper with new left

27 Jan 2015

Fringe movements may fuel dangerous populism. But new political parties sometimes offer a healthy response to the intellectual bankruptcy of the established order. Greece’s Syriza government could yet demonstrate how a reworked left can reinvigorate finance and the job market.