Euro Zone

Global recovery: this time it’s different

4 Jul 2013

European sentiment, U.S. car sales, Abenomics - developed economies are on the mend. Enough of the boom-time real economic distortions have been corrected for the good news to keep coming. But the financial miasma remains thick, and will keep the recovery slow and fragile.

Portugal mess shows need for bailout rethink

3 Jul 2013

The crisis in Lisbon is a sign that the country’s acceptance of austerity has reached its limit. A serious debt restructuring, which would lighten the country’s burden, would be the only reasonable choice. Unfortunately the country’s sovereign creditors aren’t ready for it.

Safe havens face three-pronged assault

3 Jul 2013

Markets have corrected but safe havens are still vulnerable. U.S. dollar strength is bad for gold, bonds, and the Aussie dollar. A euro zone out of acute crisis is bad for the Swiss franc. And even a tepid economic recovery will attract funds out of safe havens into stocks.

Draghi can afford to just keep talking

3 Jul 2013

The mooted end of the Fed’s bond buying could still push euro zone rates higher, hurting weak economies. For the moment yields aren’t scary, and they help keep governments focused on reform. The ECB needn’t take drastic measures, as long as just talking about them works.

Cyprus bond swap is good publicity, bad economics

2 Jul 2013

The creditor banks of Cyprus “voluntarily” exchanged 1 bln euros worth of sovereign debt at cheap rates. That lowers the bailout bill for the euro zone, but the burden falls unevenly on the country’s banks. Exchanging all creditors’ debt would have been fairer - but messier.

EU bail-in rules give taxpayer partial protection

27 Jun 2013

The template European politicians agreed on for bailing in the creditors of failed banks is a step forward. But governments will retain some autonomy on how bail-ins will be implemented. The new rules should prevent another Ireland, but may not prevent another Cyprus or SNS.

Italy still can’t shake off old derivative sins

26 Jun 2013

Rome’s use of financial engineering in the 1990s is known, but news of a possible 8 bln euro loss on pre-euro swaps is still embarrassing. The debt crisis hasn’t fully clarified Italy’s opaque public finances. Lingering obscurity won’t help if Italy has to ask the ECB for help.

Anglo Irish tapes will make EU largesse harder

25 Jun 2013

Dublin may have been misled by the bankers that caused its biggest financial disaster. That would be a blessing in disguise if it forced a much-needed public inquiry. But It will also strengthen the euro zone’s reluctance to use its funds to cut Ireland’s bank bailout costs.

Germany removes one barrier to EU banking union

21 Jun 2013

The euro zone has agreed to use part of its 500 bln euro bailout fund to recapitalise banks directly. Member states will still have to contribute to future rescues, and won’t definitely be able to rejig past ones. But any deal in a German election year is a step forward.

Cypriot pleadings to Troika are premature

19 Jun 2013

The struggling euro zone state wants its rescuers to ease its bailout terms, a leaked letter shows. Cyprus is right to feel aggrieved, and ongoing capital controls are a huge concern. But as Ireland learned, tweaks on euro zone bailouts have to be earned.

Europe tries to skirt both chaos and complacency

13 Jun 2013

Governments struggle to make tough choices when markets are forgiving. Rising yields on risk-free debt, and the German constitutional court’s unpicking of the ECB’s bond buying, herald a tougher ride for peripheral bond markets, and less chance for governments to rest easy.

Hybrids trapped by fickle agencies and firm issuers

11 Jun 2013

Investors are smarting after Dong Energy said it would redeem a hybrid bond below its market price because S&P decided the security was no longer equity. The episode has cost Dong too - and it faces punishment when it sells its next hybrid. This immature market has growing pains.

German court pragmatism tested by ECB bond buying

11 Jun 2013

The constitutional court in Karlsruhe has started hearing arguments about the ECB’s planned bond-buying programme. There is a non-negligible risk that it may conclude that the central bank’s plans are outside its remit. Such a verdict would be toxic in all aspects. But judges also have legal ways to show pragmatism.

Privatisation snag could push back "Grecovery"

11 Jun 2013

Athens will have to lower its privatisation revenue targets for 2013 after a tender for state-controlled natural gas company DEPA attracted no bids. Coming after some good news, this setback will hit confidence as well as revenue. The Greek recovery could be delayed yet again.

Hugo Dixon: Euro zone mustn’t flunk bank cleanup

10 Jun 2013

The zone is haunted by zombie banks - the result of sweeping bad loans under the carpet. The ECB has a golden opportunity to press the reset button in its new role as supervisor. But if the exercise is handled badly, the economy and its own reputation will suffer.

Draghi could use euro calm for IMF-style mea culpa

6 Jun 2013

The central bank chief wisely avoided rate cuts or extraordinary measures. But he dodged the biggest storm in Europe right now, the IMF’s criticism of the Greek bailout. The ECB has a lot to be proud of, but reflection could teach useful lessons. It’s a good time to take stock.

Euro zone greets new member of Baltic fan club

5 Jun 2013

EU authorities say Latvia can join the euro next year. That is a welcome, if unsuprising development. The Baltic country has undergone a serious adjustment and stands to gain from joining the bloc. Three years after Estonia joined, the euro zone could do with a confidence boost.

Berlin’s Spanish SME charity sensible and good PR

5 Jun 2013

A plan to channel cheap German funds to Spanish SMEs could ease funding constraints for small companies in the periphery. But the programme is small, and Germany isn’t taking on much risk. The programme is a win-win for both Germany and Spain, but it’s not a game-changer.

Investment freeze darkens German economic prowess

5 Jun 2013

Europe’s strongest economy has been suffering from falling investment for six quarters in a row. That unexpected trend isn’t due to cyclical factors alone. If it isn’t reversed, it could endanger Germany’s medium-term growth prospects.

Making sense of the ECB’s negative rates dilemma

3 Jun 2013

European Central Bank officials talk the idea of negative rates up and down. This radical monetary policy might pull the fragmented euro zone back together. It could also backfire. The Breakingviews guide to negative rates explains why policymakers are being coy.