Euro Zone

Forget Espirito Santo: EU bank reform is on track

6 Aug 2014

The implosion of the Portuguese bank is a bad precursor for Europe’s nascent banking union. The ECB shares some blame, but has yet to properly start regulating European banks. And BES’s incestuous structure and seemingly illegal activities should hopefully make it a one-off.    

Low yields don’t soothe pain of euro "lowflation"

1 Aug 2014

Regional borrowing costs have fallen. But so has inflation. Adjust for national price rises, and bond yields don’t look so low for Spain or Italy. The periphery most needs a pick up in inflation to erode debt. And Germany looks to benefit most from lower real interest rates. 

Corporate Europe parades bill of good health

31 Jul 2014

In a pre-August deluge, at least 50 companies worth a combined $2 trln reported results on Thursday. Good news trumped bad by a factor of two to one. Some of the strength is derived far from home, but it’s a fresh opportunity for global investors to revisit Plc, AG, NV and SA.

Spain’s import surge underlines need for reform

30 Jul 2014

Spain is growing faster than expected and creating more jobs. But exports are stalling due to the weak euro zone recovery, and growth is driven by a pickup in internal demand, which is boosting imports. The pattern isn’t sustainable over the long term.

Portugal makes world look a little shakier

10 Jul 2014

Problems at one smallish bank don’t justify the slump in European stocks. Yet even as the U.S. finally heals, recent data from the EU, China and Japan has mostly been discouraging. In another lukewarm year, investors probably should be jittery – and market over-reactions expected.

Deflation is good in UK but risky in euro zone

10 Jul 2014

Falling prices can be positive. In Britain, shrinking shop prices encourage consumption and may delay rate rises. In euro zone countries where unemployment is high and competitiveness weak, falling prices reflect structural flaws and may depress rather than stimulate.

ECB’s targeted loans look deliberately scattergun

3 Jul 2014

The European Central Bank has explained how banks must lend to get super-cheap funding. The terms are loose, and there’s little to ensure the cash will reach credit-starved SMEs. But that merely makes the loans more attractive - and thus a more powerful weapon against deflation.

Europe challenged by inadequate private investment

3 Jul 2014

The euro zone economy might benefit if governments invested more, but a new study shows that weak spending by companies has been a bigger drag on growth. The problem is much easier to diagnose than to cure. Special lending programmes and tax breaks might help.

Rebalancing “Made in Germany” looks real

25 Jun 2014

Rising real wages and strong consumer confidence confirm that Europe’s biggest economy has changed gears. Gone are the days of a purely export-driven boom and poor domestic consumption. The new minimum wage will only reinforce the trend, to the benefit of the whole euro zone. 

Euro periphery bonds’ era of easy gains is over

23 Jun 2014

The market sometimes sends little signals that investors are losing faith. The spread between the bid and offer price on southern European government debt has widened since May. That suggests an increase in caution, and less confidence that yields will keep falling. 

Europe can learn from limits of Japanese reform

19 Jun 2014

Abenomics is not failing, but it is proving more incremental than revolutionary. That is not surprising. It is very hard to change embedded practices in rich and ageing countries. Europeans have different problems from Japan, but these are likely to prove equally persistent. 

ECB’s new tools reach limits of monetary policy

11 Jun 2014

The central bank’s 400 billion euro liquidity injection may bring down funding costs and spur new lending. But banks are wary of possible losses, and borrowers gloomy. Don’t blame the ECB: it’s up to governments to pick up the baton – with fiscal loosening, coupled with reforms.

Bank of Cyprus is bank of choice for EU über-bulls

2 Jun 2014

Half the loans of the last major Cypriot bank are in arrears. Two-fifths of its funding comes from central banks. Yet Bank of Cyprus may still be able to secure foreign capital after the EU stress tests, if needed. If so, that would mark a new high in tapering ebullience.   

Hugo Dixon: EU needs more non-bank finance

2 Jun 2014

Banks are on the back foot and won’t be able to fund growth on their own. Non-bank finance has to take up the slack. The ECB and Bank of England have identified the importance of securitisation. Similar leadership in other non-bank areas, such as equity capital, is required.

Low volatility and high doubt hamstring markets

29 May 2014

Trading volumes are dipping in several asset classes. Low price volatility and tougher regulation can be blamed. So can investors’ bruised confidence, after some big bets went awry this year. It’s safer to sit still than to move in what might prove to be the wrong direction. 

Italy’s lesson for Europe: do your homework

27 May 2014

Matteo Renzi’s European election triumph will supercharge his reforms. The solid showing for a mainline party, despite a sickly economy, demonstrates that a strong domestic politician can be more appealing than euro-bashing. Hollande and Cameron could learn from the Italian PM. 

Negative rates lost potency as ECB dithered

22 May 2014

Talk that the ECB could take its deposit rate into negative territory at its June meeting is growing. Doing so in the heart of the crisis would have been dangerous – but potentially powerful. Now the effect may be muted, and the ECB has better tools at its disposal.

Asia can give the West a bubble-popping lecture

16 May 2014

Regulators in Asia have been developing tools to smooth economic cycles for years. Yet the debate over “macroprudential” policy in the U.S. and Europe largely ignores this experience. Western regulators haven’t overcome the intellectual myopia that led them into the crisis.

ECB can’t scratch where euro zone really itches

15 May 2014

The euro zone central bank is set to ease policy in June. That might help hold off deflation, although the ECB will be puffing lightly against a global gale. But no monetary policy can do much to perk up the first quarter’s sub-1 percent annual pace of GDP growth. 

Markets better renew flagging faith in Draghi

13 May 2014

Financial markets are more convinced by Mario Draghi’s hint of a June easing after reports the Bundesbank could support the move. Traders who are still ruling out a deposit rate cut may want to reconsider if they don’t want to be caught on the wrong side of the ECB.