Euro Zone

ECB abets risky passion for peripheral debt

9 May 2014

A promise of monetary easing is pushing down Italian, Spanish, Irish, and Portuguese bond yields, some to record lows. A harsh form of market discipline forced these countries to accept bitter medicine in crisis times. The regimen may now be too lax to compel them to get fitter. 

EU banking stress tests equipped to avoid ridicule

29 Apr 2014

The European Banking Authority’s macroeconomic assumptions for its 2014 exercise aren’t as harsh as they could have been. But the methodology will encompass sovereign risk, and harmonised balance sheets will add rigour. Unlike prior efforts, the test should avoid becoming a joke.

VAT hike is the missing piece in Spain’s tax plans

25 Apr 2014

With the economy humming, the government plans to lower taxes in the runup to elections. This may look like good politics, but the government needs to take tough decisions too. Madrid could balance tax cuts and lower social security payments with increases in VAT. 

Renzi corporate rejig blends change and continuity

15 Apr 2014

Italy’s premier has pleased markets and voters with his choice of new managers for state-controlled companies. Female chairs reflect the mood for change, while promoting internal CEOs elevates industrial logic over political meddling. Renzi has avoided a potential banana skin.

Draghi abandons threadbare G7 currency truce

15 Apr 2014

The ECB chief’s promise to ease policy if the euro rises makes him the latest to flout big developed countries’ agreement not to use exchange rates as an economic tool. Competitive devaluations are wars with few winners. But further currency conflict looks almost unavoidable.

Draghi’s latest headache needs more than talk

14 Apr 2014

The IMF’s latest shindig enabled ECB officials to promise action and talk down the euro. ECB chief Mario Draghi avoided euro breakup in 2012 just by pledging to act. He’ll find it harder to sort 2014’s bogeyman, deflation, without actually deploying aggressive monetary policy.

Hugo Dixon: How Greece can turn vice to virtue

14 Apr 2014

The vicious cycle of two years ago is turning virtuous – see Athens’ return to the bond market last week. More can be done to maintain momentum, especially rooting out vested interests. As ever, the weak spot is politics.

Greek bond fever may do economy few favours

10 Apr 2014

Greece’s first bond in four years has met roaring demand. The 3 bln euro deal suggests past bondholder losses and present economic woes are forgiven and forgotten. But the country still has big problems. Excessive investor enthusiasm could reduce the pressure to reform.

Hugo Dixon: Greek rebound is astonishing

8 Apr 2014

Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market. There are still political and economic risks. But the financial turnaround of Greece is truly impressive.

Renzi’s Senate reform could prove mission possible

8 Apr 2014

The Italian premier hopes that turkeys will vote for Christmas, and the Senate will agree to be shrunk with limited powers. That would make governments stronger. Renzi has two big sticks: the threat of a referendum, and the populist pressure of comedian Beppe Grillo’s party.

Hugo Dixon: Spain’s recovery clouded by politics

7 Apr 2014

Prime Minister Mariano Rajoy has achieved a lot in just over two years and growth has finally returned. But as Spain enters a new electoral cycle, the appetite for reform is waning. What’s more, in two years, there is a big question mark.

New headache for Spanish banks: zombie companies

7 Apr 2014

Spain is revamping its rigid insolvency law to help over-indebted firms avoid liquidation. That makes sense and will save jobs, but the country’s banks could end up burdened with equity stakes in an unknown quantity of troubled companies. Managing this will be tricky.

Euro crisis 2.0 will need a new shock absorber

4 Apr 2014

European banks kept yields in check by buying sovereign debt in 2010-13. Now that Basel III rules force losses to be deducted from capital, banks like BPI are shedding their holdings. It unpicks the notorious “doom loop,” but leaves the ECB explicitly on the hook in future.

Draghi remains conventionally unconventional

3 Apr 2014

QE is no longer a dirty word in Europe. ECB head Mario Draghi has given his strongest hint that “unconventional” measures are on the agenda to fight low inflation – and help depreciate the euro. But by talking instead of acting, the central bank has lost the element of surprise. 

The question ECB hasn’t answered: why wait?

2 Apr 2014

The latest euro zone inflation numbers show that the European Central Bank is failing to provide price stability, its only mandate. The ECB may not believe that disinflation is here to stay, but even if that’s right, there’s little risk in acting now to help Europe’s economy.

French cabinet reshuffle creates policy confusion

2 Apr 2014

Francois Hollande has chosen an odd couple to tackle France’s economic malaise. Old hand Michel Sapin will be finance minister while anti-globalisation crusader Arnaud Montebourg will run the economy ministry. The crude effort to please both markets and the public will backfire.

Big German public pay hike is good news for Europe

2 Apr 2014

More than 2 mln civil servants in Germany will see their pay rise 5.7 pct over the next two years. That means real income growth, and it will be a benchmark for the private sector. But much hinges on what consumers will do with the extra money in a country where savings are high.

ECB could fight currency war – by buying Treasuries

2 Apr 2014

The euro is at uncomfortable levels partly because quantitative easing is pulling down other currencies. A radical idea is that the ECB could respond by adopting QE and buying U.S. Treasuries. Direct FX intervention would break the rules but might lead to discussion and disarmament.

Banking goliaths can indeed be tamed

1 Apr 2014

No country has ended the problem of maybe needing to rescue a hulking financial institution. A new IMF report, though, shows the United States has done a better job than most with stronger rules and less concentration. A $600 bln subsidies figure also gives lawmakers a target.

New French PM’s main challenge: his own party

1 Apr 2014

Manuel Valls will take over the French government after the ruling Socialist Party’s debacle in municipal elections. The interior minister’s free-market leanings suit President Hollande’s new supply-side views. But to conquer, Valls must fight off more traditional Socialists.