Euro Zone

The wrongs and rights of the euro banking union

19 Dec 2013

The EU governments’ agreement on how to resolve failing lenders looks complex and hard to implement, and it could worsen the fragmentation of euro zone banks. But it is a start. And the final compromise lowers the political barriers to fixing the southern countries’ lending woes. 

Hugo Dixon: Europe’s post-crisis challenge

16 Dec 2013

The hot phase of the euro crisis may be over. But the zone will limp on for years with low growth and high unemployment unless further action is taken on three fronts: bank balance sheets must be cleaned up, monetary policy loosened and more free-market reforms adopted.

There’s method in ECB sovereign debt muddle

12 Dec 2013

President Mario Draghi seemed to contradict ECB executive board member Peter Praet by hinting he’s not about to demand capital against euro zone banks’ sovereign debt. Investors can expect more mixed messages. It’s hard to gee up lending while trying to become a tough regulator.

BoE’s small-firm stimulus is blueprint for Draghi

2 Dec 2013

The European Central Bank is reportedly mulling cheap loans to banks to gee up lending. The newly tweaked UK Funding for Lending scheme shows this isn’t easy, and replicating it in the euro zone would be even tougher. But Europe’s businesses need a leg-up even more than the UK’s.

Dutch downgrade is a lagging indicator

29 Nov 2013

The Netherlands’ loss of triple-A status stems from weaker growth. The economy is recovering slowly from a housing bust that has pulverised household finances. But property prices are bottoming, debt is low and reform is underway. Other euro zone members are bigger worries.

German politics contain tail risk for Europe

27 Nov 2013

Having negotiated a coalition treaty with Angela Merkel, Germany’s Social Democrats now face the harder job of selling the deal to a sceptical party base, which has the last word in an upcoming vote. A “nein” is unlikely, but possible – and would cause political havoc in Europe.

Sub-zero ECB rates could be made to work

25 Nov 2013

The European Central Bank has discussed charging banks for overnight deposits as a way of spurring them to lend. There are risks: banks may pass the cost on to the weakest customers. Still, a tiny negative interest rate would limit the harm - and have a positive symbolic effect.

Spain should be ready to axe latest bank auction

22 Nov 2013

Madrid has kicked off the bidding for NCG, one of its nationalised lenders. Beginning the process to unwind its mega bank bailout is a laudable aim. But Spain shouldn’t use this goal as an excuse for generous buyer guarantees that leave the state on the hook for further losses.

Markets may one day notice depth of French funk

21 Nov 2013

France’s stalled economy is a drag on Europe. But the government doesn’t seem to care about the bad numbers, and can point to the financial markets’ insouciance. That could change when the Fed moves - or when investors discover the renewed charms of Europe’s periphery.

Markets may underrate ECB’s propensity to act

18 Nov 2013

To judge from the firmer euro, investors needed less than two weeks to decide that the euro zone central bank’s unexpected rate cut wasn’t a sign it has become more activist.  The complacency misses something: the ECB is now willing to act with a much weaker consensus.

Italy finds a hidden trove of bank capital and tax

15 Nov 2013

The government wants the nation’s banks to revalue their stakes in the Banca d’Italia. It says the move addresses a conflict created by banks owning central bank shares, but the deal would look more like a tax grab by a cash-strapped treasury, and a mini-bailout for the banks.

Lower inflation can spur global growth

15 Nov 2013

The trend towards lower inflation rates is unlikely to end in massive global deflation. There may be a risk in the euro zone, but most disinflation is a healthy response to falls in oil and commodity prices. Consumers and growth will benefit. Policymakers shouldn’t panic.

Ireland’s bailout escape is a calculated gamble

14 Nov 2013

Dublin won’t seek a backup facility when its bailout ends. The move shows how Ireland has regained market trust but says little for euro zone solidarity. The country has weak banks, and remains over-indebted and exposed to shocks. Still, the odds are that it will make it.

Germany can’t change until France reforms

12 Nov 2013

Euro zone leaders can’t convince the German chancellor that the country’s current account surplus causes problems. She worries about France and other euro members’ commitment to reform. That could leave space for a pro-growth deal.

Hugo Dixon: Greece’s reform job isn’t even half done

11 Nov 2013

The government hasn’t done enough to root out vested interests. Meanwhile, it could collapse if the troika forces it to impose more austerity. Its best bet is to try to persuade its lenders that it’s so serious about structural change that more cuts and taxes aren’t required.

ECB adds to bubbly markets’ risky lack of fear

8 Nov 2013

The euro zone central bank cut rates to fight deflation, but its move on Thursday pumps up the global glut of money. The unsurprising result is investor complacency amid many signs of market excess. The calm suggests danger.

Draghi plays his last conventional card

7 Nov 2013

The ECB head announced a rate cut a month earlier than expected. It won’t work miracles, but might fend off deflation. With traditional monetary tools near exhausted, Draghi will hope for a calm 2014. If it isn’t, his talent for activist policymaking will face more severe tests.

ECB easing shows forward guidance no bar to shocks

7 Nov 2013

The central bank’s rate cut triggered sharp price swings and shows policymakers and financial markets have different ideas of what a clear steer on monetary policy means. Rate setters may be right not to paint themselves into a corner, but aren’t proving as predictable as billed.

ECB options include doing nothing

6 Nov 2013

Markets and politicians are putting pressure on the European Central Bank to “do something” to help the economy. The bank has many options. None of them are spectacular and they all come with risks. Doing nothing at this week’s meeting is a good alternative.

France won’t meet its deficit target. No problem

5 Nov 2013

The European Commission’s latest forecasts show that France will not be able to shrink its budget deficit to the mandated 3 percent of GDP by 2015. But that isn’t bad news. Like the rest of the euro zone, the country will gain by breaking free from the austerity straitjacket.