Euro Zone

Hugo Dixon: Don’t bet on EU treaty change

31 Mar 2014

Wolfgang Schaeuble and George Osborne, the German and UK finance ministers, want European treaties redrafted to shore up the euro zone and keep Britain in the EU. But just because they want this, doesn’t mean it will happen – not least because treaty change isn’t needed.

Spain’s not-so-bad bank still has much to prove

28 Mar 2014

State-backed entity Sareb, key to the cleanup of the Spanish financial system, has set itself up in record time. It made a small loss in its first year, and 2014 doesn’t look much easier with real estate prices still falling. The bad bank must up its game to make ends meet.

Euro zone periphery trade is running out of gas

20 Mar 2014

Investors keen on a recovery story have been piling into assets in Spain, Italy, Portugal and Greece. Some periphery assets now look expensive. Further gains need two conditions to be satisfied – politicians enacting more reforms and companies growing profits. 

Hugo Dixon: Europe should give Cyprus a hand

17 Mar 2014

One year after a shock plan to raid bank deposits, capital controls remain in place. The economy hasn’t shrunk as much as feared, but the recession is still deep. The euro zone should help – principally by enabling the lifting of capital controls and the creation of a bad bank.

ECB needs cunning plan to join currency wars

13 Mar 2014

The euro is at two-and-a-half-year highs, a strength that could drive ultra-low inflation even lower. In principle, the European Central Bank is squeamish about blatantly targeting a weaker euro. But it need have no qualms about picking policy tools that maximise currency damage.

Hugo Dixon: Labour has just shrunk Brexit risks

12 Mar 2014

UK opposition leader Ed Miliband has virtually ruled out a vote on Britain’s EU membership if he becomes PM in 2015. David Cameron will need to win an overall majority and then lose a referendum for the UK to quit before 2020. This is good news for business.

ECB’s bank review short on details, not on rigour

11 Mar 2014

Europe’s new supervisor has divulged key details about its new review of bank balance sheets. It isn’t too specific on critical areas such as the definition of loan forbearance, partly because the exercise is complex and rushed. But lack of specifics doesn’t mean a cop-out. 

Hugo Dixon: EU’s half-baked bank union could work

10 Mar 2014

A banking union wasn’t strictly needed to solve the euro zone’s problems and what has been agreed isn’t even what the designers wanted. That said, with a few changes, it could be turned into something that is fit for purpose.

Italy’s Renzi off to a bad start

6 Mar 2014

Matteo Renzi has been forced to amend his electoral reform. The result could mean that Italy will remain ungovernable. The new prime minister’s hand is weaker, even though the risk of early elections has subsided. And serious economic reforms will be harder.

Panglossian view of euro zone debt has pitfalls

28 Feb 2014

Italian and Spanish bond yields are falling with German ones. Investors no longer view southern European debt purely through the prism of credit risk. That makes sense for now. But over-optimism may be unwise, especially if low-to-no inflation hampers debt-cutting. 

Italy’s Renzi has big dreams and small mandate

25 Feb 2014

The new prime minister announced ambitious reforms on a tight deadline. But his position in parliament is weaker than his sleepy predecessor’s. The promise of shock therapy may give Italy kudos in Europe. But markets need more details - and delivery - before giving him credit.

Scottish secession boxed in by dodgy debt dynamics

25 Feb 2014

An independent Scotland would find it difficult to adopt either the pound or the euro, after snubs from London and Brussels. A brand new currency would be logical, but risky. Whatever the option, assuming their share of UK debt will leave the Scots with little wiggle room. 

Hugo Dixon: ECB faces severest stress test

24 Feb 2014

A lot is riding on the cleanup of euro zone lenders, which is being overseen by the bloc’s central bank. Progress so far is encouraging. But clarity is needed on a few more things to ensure that banks get a proper scrubbing and can therefore support an economic recovery.

ECB uses poor measure to dismiss disinflation fear

20 Feb 2014

The euro zone central bank’s non-worry about deflation is partly based on the market’s long-term inflation expectations. But the ECB’s pet measures look too far in the future to be helpful. And the chosen gauges are so placid that they will probably only move after it’s too late.

Hugo Dixon: A workable euro zone fitness regime

17 Feb 2014

The currency bloc’s leaders want weaker countries to sign contractual vows of economic reform. But there needs to be a quid pro quo. “Euro-rates”, where countries with lower interest rates subsidise those with higher yields, could do the trick.

Euro zone growth cycle is virtuous but slow

14 Feb 2014

The current pace of euro zone growth would be acceptable in normal times. Better-than-expected GDP growth in Germany and France will help reduce unemployment, further increasing demand and reducing fiscal deficits. But it’s too slow to heal the deep scars of the 2009 recession.

Renzi must be more than Italy’s “demolition man”

13 Feb 2014

Matteo Renzi promises change, but his rise to power is starting to look like a classic Roman coup. His rival, Prime Minister Enrico Letta, couldn’t revive Italy’s dormant economy. Renzi may find the task equally tough, and a victory without an election doesn’t help.

German court’s “No, but” may undermine ECB’s OMT

7 Feb 2014

The constitutional court strongly implied that the central bank’s bond-buying programme is outside its remit. OMT defenders will worry, but there are hints that the higher European court can make things right. Still, the decision will reinforce German doubts about the ECB.

For third Greek bailout, EU could try generosity

6 Feb 2014

Brussels and the IMF are mulling how far they could go to ease the Greek debt burden, without agreeing to a straightforward haircut. They should act fast - and be bold. If they fail, calls for more radical measures will grow louder, ahead of crucial European elections.  

Hugo Dixon: QE is the way for the ECB to go

5 Feb 2014

With euro zone inflation falling to 0.7 percent and trouble in emerging markets, the risks of deflation are up. The ECB says inflation expectations remain anchored at near 2 percent. But if the anchor slips, deflation fears could be self-fulfilling. QE is the most effective tool.