Euro Zone

Hugo Dixon: ECB really must act on deflation

4 Nov 2013

With the euro near a two-year high, the unemployment rate at 12.2 pct and inflation at 0.7 pct, the case for looser monetary policy should be clear. The question is what tools to use: lower interest rates, another LTRO or the ECB’s first dose of QE. A mixture is the answer.

Weak dollar stress-tests the ECB’s toolkit

25 Oct 2013

The euro has gained 8 percent versus the U.S. currency since early July. The ECB’s official line is that the exchange rate isn’t a target. But the tightening of financing conditions in the euro zone is a source of concern – and the ECB has limited tools to address the situation.

ECB’s bank review balances pragmatism and pain

23 Oct 2013

The central bank’s template for its assessment of euro zone banks’ finances looks robust inasmuch as it will help harmonise opaque and disparate balance sheets. It’s not that strenuous on capital buffers – which takes sting out of the question of who will fill the holes.

New ECB liquidity splurge couldn’t please them all

17 Oct 2013

Markets are gearing up for another liquidity injection by the ECB, as the past years’ extraordinary measures expire. The aims could include suppressing rates, channelling funding to small companies and reinforcing the ECB’s forward guidance. That leaves room for disappointment.

European telcos a better bet than U.S. rivals

8 Oct 2013

Sure, American carriers can charge higher prices thanks to a historical quirk and limited competition. But SoftBank’s entry may change that. Across the pond, though, consolidation is starting and prices may soon rise. Shorting U.S. and buying European telcos looks smart.

Hugo Dixon: Bundesbank right to focus on doom loop

7 Oct 2013

Bundesbank President Jens Weidmann has criticised rules which encourage euro zone banks to load up on their own governments’ debts. The ECB will have the power to end this bad practice when it becomes the industry’s regulator. But how to do this without triggering a new crisis?

Too soon to cheer Lisbon’s latest health check

4 Oct 2013

Portugal got a thumbs-up from lenders, but uncertainty over the outlook persists as it stumbles to the end of its programme. Investors are still antsy, growth is elusive and austerity has reached its limits. The country could yet turn into the euro zone’s biggest drag.

Europe’s news is good but full cure is a way off

3 Oct 2013

Economic momentum has turned clearly positive in both the euro zone and the UK. GDP growth in 2014 could surpass 2 pct. That’s nice, but it will still take years to undo the damage from the post-Lehman recession and the lingering euro crisis. Demographics make everything harder.

Euro states don’t merit sovereign debt privilege

3 Oct 2013

Banks can count most government paper as risk-free. This treatment is plain dishonest for euro zone members. Countries that can’t print their own money can default. Ending the lie would be painful, but the benefits outweigh the cost - particularly if strong states help the weak.

Politics stops Italy learning new economic tricks

30 Sep 2013

Survival has become the priority for the Letta government, as it was for too many of its predecessors. The longer this is the norm, the more Italy will lag other southern European countries’ success in emulating Germany’s export-reliant growth model.

Berlusconi pushes Italy to the edge, again

29 Sep 2013

Il Cavaliere’s decision to pull his party’s ministers from the coalition government could spook markets, trigger chaotic elections, delay reforms and hurt the country’s fragile recovery. The only silver lining: it could also trigger the long-overdue renewal of Italy’s politics.

Intesa in self-made crisis after skirting big one

27 Sep 2013

Italy’s largest retail bank got out in front of the euro sovereign crisis by raising capital early. Now CEO Enrico Cucchiani may be ousted after a boardroom scrap. Unless Intesa wants to further rile investors, it needs to be similarly decisive in sorting out its governance.

ECB crisis loans worked. Now for the hard part

24 Sep 2013

Banks are slowly but surely repaying the ECB’s crisis loans. It’s a good sign but there is a snag - money market conditions will tighten further if too much is repaid too quickly. That’s the last thing the central bank wants. It must decide soon how, and when, to react.

Germans’ vote for euro comes with a few spices

23 Sep 2013

It was a close call, but Germany’s new anti-euro party eventually failed on election day. Despite Deutschmark nostalgia and inflation phobia, the country remains immune to euro scepticism. The AfD could, however, create some headaches for Merkel - and the rest of Europe.

Merkel’s triumph maintains Europe’s muddle-through

23 Sep 2013

The exalted chancellor still needs a partner, probably in a grand coalition with the left-of-centre SPD. That will not bring big policy changes. Europe should brace for more fiscal squeezes and slow progress on banking union. But the new coalition’s lifespan may be short.

Hugo Dixon: Euro zone needs anti-boom activism

23 Sep 2013

The ECB’s plan to keep interest rates low for an extended period could ultimately fuel booms in countries such as Germany. That’s the problem with a one-size-fits-all monetary policy. The solution is for countries threatened by booms to pursue vigorous counter-cyclical policies.

Review: Merkel’s hidden European agenda

20 Sep 2013

Her recent electoral triumph highlights that Angela Merkel is clearly an effective politician. A new German biography depicts a principled woman who is committed to a Europe of strong nations - bound together more by mutual commitments than by Brussels bureaucracy.

Fed does to Europe what ECB, BoE couldn’t

19 Sep 2013

The U.S. central bank’s non-taper has done more for European money market rates in one day than the ECB and the Bank of England’s “forward guidance” policies did in weeks. Policymakers across Europe will be glad for the help, but it makes them look weak. That is a problem.

Early end to Cyprus’ capital controls no sure bet

18 Sep 2013

The Cypriot president says that restrictions in place since March could be lifted in January. Nicosia has been getting through the many reforms needed before such a move can be safely contemplated. But whenever it happens, more remains to be done to avoid a capital flight.

Euro zone periphery avoids rates storm for once

23 Aug 2013

Euro zone peripheral bonds have dodged the taper tantrum. That’s because the hot money now deserting emerging markets never pumped up the euro zone’s sickly members. Rising rates could still hurt the periphery, but will be constrained by the euro zone’s low growth.