Euro Zone

Bond vigilantes succumb to unlikely complacency

24 Apr 2013

Euro zone bond investors are shrugging off rising national debts, missed growth targets and political uncertainty. Having first terrorized policymakers into austerity, they now seem to think they will be reflated to safety. The relaxed approach leaves a lot to trust.

Barnier broadside leaves EU looking soft on banks

23 Apr 2013

The EU’s top financial regulator seems out of touch on banking reform. While his peers want lenders to keep more capital, Michel Barnier says the U.S. should give European banks a break. He thinks global teamwork can avert problems. History suggests that’s naïve.

Hugo Dixon: Greece will probably pull through

22 Apr 2013

Although the economy will have a terrible 2013, next year should be better. But the outlook is fragile: political crisis could yet rear its ugly head, tax evasion is rife and there’s the risk of external shocks, from Cyprus or further afield.

IMF devalues own advice with warnings overload

18 Apr 2013

Having failed to predict the sub-prime or euro crisis, the fund is eager to avoid another embarrassment. Now its reports brim with alerts on everything from growth-killing austerity to risky bets at U.S. pension funds. Flashing too many red lights isn’t helpful either.

Euro zone daren’t flunk Lisbon’s solidarity test

12 Apr 2013

After taking a chainsaw to the Cypriot economy, euro zone officials must decide whether to give Ireland and Portugal more time to repay their bailout loans. An extension won’t cost much or save either country, and may be inevitable. Playing hardball would be self-defeating.

ECB’s plan for small companies lacks pizzazz

12 Apr 2013

The central bank has outlined concrete proposals to address the credit drought hitting small businesses in the euro zone. Cutting capital requirements and smoothing the path to a proper SME securitisation market makes sense. The snag is that it still might not make banks lend.

Inflation fear shouldn’t constrain monetary policy

9 Apr 2013

Central banks have more room to manoeuvre than inflation hawks think. Even temporarily excessive economic stimulus is unlikely to derail price stability, as a new IMF analysis suggests. Monetary policymakers should use this leeway - especially in the euro zone.

U.S. workers stuck with euro-style sluggishness

9 Apr 2013

GDP and unemployment data suggest a much stronger recovery in the U.S. than in Europe. But adjust for demographic changes, and working-age people aren’t feeling much difference. Neither Washington nor the euro zone has found a policy mix that works especially well.

Greek banks look bail-in proof – for now

9 Apr 2013

The stalled merger of NBG and Eurobank will leave bailed-in Cypriot depositors wondering why Greek lenders are left whole. Athens’ pre-agreed bailout terms and a fear of peripheral bank runs are the reasons. That could change if Greek banks need more money.

Portugal’s mini-crisis is too typical of euro woes

8 Apr 2013

The constitutional court has blocked cuts to public sector perks. Lisbon will almost certainly find compromises and the euro authorities will keep providing support. But for the country and the currency to prosper, unfair privileges need to be tackled, not preserved.

Hugo Dixon: Cyprus is edging towards euro exit

8 Apr 2013

Quitting the single currency would devastate wealth, fuel inflation, lead to default and leave the small island isolated in a troubled neighbourhood. But the longer capital controls continue, the louder the voices calling for bringing back the Cyprus pound will grow.

Ljubljana should take the bailout it doesn’t need

5 Apr 2013

Slovenia has less debt than Germany and a lower deficit than France. But its bond yields are through the roof. Comparisons with Cyprus are silly - but Slovenia should take a bailout to lower funding costs. A successful deal would help the euro zone undo the damage of Cyprus.

Groundhog day in Rome

3 Apr 2013

Italy’s warring politicians keep on failing to agree on how to reform the country and the political system. Neither a lingering recession nor the rise of the anti-establishment 5-Star Movement has concentrated minds. Political stasis has a high cost for the Italian economy.

German eurosceptics strong enough to nudge Merkel

3 Apr 2013

A new anti-euro party is unlikely to make it into parliament in the 2013 elections, but its appeal will make it harder for the chancellor to appear too generous to troubled periphery nations, despite her popularity. The rest of the euro zone should understand her predicament.

Hugo Dixon: Cyprus bank "resolution" a bad joke

3 Apr 2013

Resolution, a new buzzword in financial regulation, is supposed to stop taxpayers having to bail out banks, while imposing pain fairly on shareholders and creditors. In Cyprus, Greek deposits and favoured groups at home are exempt from haircuts. It’s anything but fair.

Welcome to another year of the Great Stagnation

2 Apr 2013

Remember the Great Moderation? Before the financial crisis, economists thought they had found the recipe for steady growth from here to eternity. Almost five years after the banking collapse, recovery remains tepid around the world, stifled by debt, fear and demographics.

Cypriot banks’ liquidity lifeline becomes a noose

28 Mar 2013

Laiki’s 9 bln euros of emergency liquidity assistance from the Cypriot central bank kept it afloat before the bank’s winding down. Now it has been dumped on rival Bank of Cyprus. The island state is learning the hard way that ELA is a liability for the government, not the ECB.

ECB will have to bankroll new era for euro banks

28 Mar 2013

Credit spreads have jumped on the belief that Cyprus will be a template for resolving bust banks. The threat of bailing in senior creditors makes for safer banks and fewer taxpayer-funded bailouts. For now, it worsens life for weak banks. And that means more work for the ECB.

Hugo Dixon: Cyprus controls an "omnishambles"

28 Mar 2013

If the Argentine-style “corralito” really can be lifted in seven days, the damage could be contained. But that doesn’t seem credible. Extended controls could spawn bribery, sap confidence, further crush the economy, spread contagion and ultimately lead to euro exit.

Cyprus capital controls create monetary disunion

27 Mar 2013

Nicosia is set to limit cash, credit-card use and the transfer of funds abroad. Making a Cypriot euro less fluid than in the rest of the euro zone sets a dangerous precedent. If controls persist beyond a few weeks, Cyprus may come to rue not taking a chance on bank runs.