Euro Zone

Hugo Dixon: Italy has no good Plan B

13 Oct 2014

Matteo Renzi’s Plan A is to push through domestic reforms, hope the ECB manages to get inflation ticking up, and keep his fingers crossed that the economy stops shrinking. But if this fails, a mega wealth tax, debt restructuring and/or exit from the euro beckons.

ECB may find that senior risk can be dangerous

7 Oct 2014

The central bank’s plan to buy asset-backed debt echoes the 2008 crisis. That has raised worries about possible losses. The ECB will buy only senior-ranking debt, but even with that safeguard there is a tension between reviving securitisation and increasing its balance sheet.

Guest view: The risks of European derivatives reform

6 Oct 2014

The CEOs of London Stock Exchange and LCH.Clearnet worry that Europe’s new MiFID II rules for financial markets will “lose their teeth.” But crude implementation of complex regulation could damage market liquidity, innovation and stability, warns Paul Swann of ICE Clear Europe.

ECB keeps hands free with proxy QE

2 Oct 2014

President Mario Draghi gave little new detail on the ECB’s private debt purchase programme, and no hints that sovereign bonds will ever follow. Yet the central bank’s asset purchases could be large, and have major “spillovers.” That would indirectly help governments too.

ECB can stomach Greek junk risks

1 Oct 2014

The central bank seems ready to break its own collateral rules to buy Greek or Cypriot asset-backed debt. That’s a side effect of policy success, not a cause for worry. The ECB needn’t be a slave of rating agencies, and the risks to its balance sheet are manageable.

ECB’s trillion-euro race may start slowly

17 Sep 2014

A first round of liquidity injections this week will test Mario Draghi’s attempt to fight deflation in the euro zone. A small take-up could increase pressure for more ambitious sovereign debt purchases. But the ECB has time, and several ways to boost its balance sheet as planned.

Calculator: A little ECB QE can go a long way

11 Sep 2014

The European Central Bank will soon begin buying asset-backed bonds. Breakingviews’ build-your-own collateralised debt obligation shows how purchases could help banks free up capital and lower loan rates. The ECB might not need to take much risk to make the exercise worthwhile.

Euro has further to fall

5 Sep 2014

The single currency has dropped sharply since the ECB eased policy this week. The central bank now openly hankers for a weaker euro to boost inflation, and is doing all it can to bring this about. Traders sometimes fight central bankers. This time they look happy to go along.

Negative rates are just an incremental positive

5 Sep 2014

Lenders to Germany are now promised a negative nominal return for three years, and France can borrow below zero for two. The negative rates break a historic taboo, but they may not work as the ECB hopes. High debts, not high rates, are the biggest drag on the euro zone.

Draghi plays final hand in euro poker game

4 Sep 2014

The ECB is going all-in. It has cut rates to near-zero and will buy assets on a large scale – on top of the ultra-cheap liquidity it had already announced. The moves could help the euro zone economy, but the ECB has now used all its powder. The rest is up to governments. 

Markets overestimate Draghi’s economic powers

1 Sep 2014

Investors show a touching faith in the ECB president’s ability to boost near-zero inflation. The trust may be misplaced. Mario Draghi’s success in defusing the euro zone crisis relied on his sway over markets. He has less influence over the euro zone economy and governments. 

Hugo Dixon: EU’s three big problems all linked

1 Sep 2014

The stagnant euro zone economy is one reason the EU is reluctant to take action against Russia. It also increases the risk that Britain will quit the EU - which, in turn, would diminish its power and ability to stand up to Moscow. The EU really needs to get its act together.

ECB keeps hoping in ABS field of dreams

29 Aug 2014

Mario Draghi expects investors to come if he builds a market that he admits barely exists. Purchases of asset-backed securities might help growth and boost inflation. Yet the obstacles are substantial, and regulation is a thorn. Government aid would help.

Germany not yet moved by euro zone reshuffle

27 Aug 2014

France has a more credible government, Italy is moving towards reform and the ECB’s Draghi wants looser fiscal policies. So far, Berlin isn’t impressed. But a new EU Commission takes over soon, leaving more room for talks on growth-friendly policies – which will benefit Germany. 

Draghi leaves Germany in austerity team of one

26 Aug 2014

The ECB president is now calling for looser fiscal policies, with hints that he will follow up with monetary relief. The change of heart is a rational response to euro zone stagnation and persistent low inflation. All that’s needed now is to bring Angela Merkel along.

France’s housing slump is sign of deeper woes

26 Aug 2014

House prices are falling and Paris is a buyer’s market. Hollande’s clumsy policies and lower interest rates should have the opposite effect. But the seriousness of the slowdown incites households and companies to hoard cash. Only shock therapy can end the death spiral.

Italy caught between two slowdown theories

25 Aug 2014

No one questions that the euro zone’s third largest economy is in trouble. But Germans think the problem is institutional, while Keynesians think the challenge is monetary. They’re both right, and it might be possible to address both issues simultaneously.

Blackstone finds way to outsource skin in the game

21 Aug 2014

The private equity firm’s latest securitisation would normally require it to keep 5 percent of the risk. But Blackstone has found a way to outsource its equity sliver to other investors. The structure looks acceptable – but investors should be wary of copycats that might not be.

Euro-pessimists have only themselves to fear

13 Aug 2014

Gloom about the single currency is justified. Regional economic activity is weak, inflation is low, and the central bank is not-so-covertly promoting a lower exchange rate. In fact, almost the only thing that may support the euro in coming weeks is the ubiquity of pessimism.

Euro zone’s biggest problem is debt, not slow growth

7 Aug 2014

Growth is stumbling in Italy, Germany and elsewhere. That in itself would not be a huge problem – except that the sovereign debt mountain has kept growing even in “austere” years. This means states cannot spend their way out of trouble, and another crisis remains a real risk.