Euro Zone

Europe can make the case that Cyprus is a one-off

18 Mar 2013

The euro zone broke a taboo by hitting insured depositors in Cyprus. To avoid a panic, it must convince markets and savers that what happened there will stay there. The Cypriot banking system was indeed unique. But no guarantee from European leaders can be crisis-proof.

Europe’s bank-run defences have limits

18 Mar 2013

The decision to hit insured depositors as part of the weekend’s Cypriot bailout could prompt those in Spain and Italy to take evasive action. If so, the ECB can deploy major liquidity assistance. But a really big run would test the willingness of central bankers to support its use.

Muted markets still speak loud about Cyprus

18 Mar 2013

Investors did not seem much moved by the news of a Cypriot bank raid. Don’t mistake that calm for equanimity. European equities trade at a hefty discount to U.S. and Japanese peers - precisely because of the sort of risk that this crisis chapter makes manifest.

Euro zone gambles on depositors’ trust in Cyprus

16 Mar 2013

Depositors in Cypriot banks will contribute one third of the island state’s euro zone bailout. The country’s debt now looks sustainable, but it could spook bank account holders in other indebted countries. The move highlights the need for a euro-wide bank resolution authority.

Ireland shows powers of virtual ECB

14 Mar 2013

Dublin has sold the first 10-year bonds since its bailout. The move helps it qualify for controversial ECB bond buying - and shows it doesn’t need it. Mario Draghi’s virtual intervention is working wonders. The euro crisis goes on.

ECB must act as Draghi’s confidence trick wanes

11 Mar 2013

Europe got a boost when ECB President Mario Draghi committed to preserve the euro last year. That is now waning. The euro zone faces contraction this year, and weak inflation risks becoming deflation. The ECB’s failure to cut its 0.75 pct benchmark rate is hard to fathom.

Draghi’s dance on negative rates isn’t over

8 Mar 2013

The ECB chief played down hopes of cutting rates below zero, stressing “serious” risks. It could punish cash-rich banks and may not lead to more lending in the context of the Italian crisis. But if the euro shoots up, talk of negative rates may return.

Ireland, Portugal prey to European electoral cycle

7 Mar 2013

Europe’s poster children for austerity will get symbolic relief from the extension of their bailout loans. This is a timid response to the Italian shock. Euro members want to show that fiscal discipline pays, but with elections looming, Germany can’t agree on a bolder package.

Latvia now well placed to benefit from euro

5 Mar 2013

The Baltic state has applied to join the single currency - a move some deem foolish given the euro zone’s woes. But Latvia’s membership should be a reason to cheer: the monetary union can do with some support - and it is a chance for Riga to stabilise and boost its economy.

Markets wrong to downplay Italian political risk

5 Mar 2013

Italian bond spreads have risen since the election. But it could have been worse - and considering the possible scenarios, it should. The priority is political reform, so a credible government can emerge at the next election. But even this isn’t assured.

Hugo Dixon: Spain probably won’t catch Italian flu

4 Mar 2013

The risk of Madrid being thrown off its reform path has risen since Italy’s shock election. But Mariano Rajoy doesn’t have to face the voters for nearly three years. What’s more, the Italian vote may even have a silver lining for Spain if it leads to less austerity across Europe.

Make lenders to euro zone banks liable sooner

28 Feb 2013

As it stands, the new “bail-in” regime for senior creditors is not set to begin until 2018. Until then, their loans remain virtually risk free. The authorities are thinking of moving faster. There are dangers, but markets are already getting ready for the shift.

Germany’s objections to ESM bank recap have merit

27 Feb 2013

The founding treaty of the euro zone’s bailout fund must be amended before it can directly recapitalise banks. Germany is reluctant, and its electoral climate doesn’t make things easier. But the questions it has raised about the current plan are serious, and should be dealt with.

Euro zone must change to allow Italy to reform

26 Feb 2013

The Italian election results caught euro zone leaders by surprise. They now fear “instability”. It’s clear that Italy will pay a high price if it fails to reform. But crude “austerian” meddling by other governments, the EU and the ECB helped create the current mess.

Hugo Dixon: Italy could reignite euro crisis

26 Feb 2013

The disastrous election has echoes of last year’s first inconclusive Greek election - except that Italy is much bigger. The country faces political paralysis, while its economy is shrinking and its debt is rising. The ECB safety net has holes in it and contagion could return.

Cyprus vote lobs bailout ball into Europe’s court

25 Feb 2013

In choosing the conservative candidate as their next president, voters in the island state have expressed their strong support for a euro zone bailout and tacitly accepted some reform-induced pain. Cypriots have delivered their part of the deal. Now Europe must do the same.

Bulgarian government victim of euro zone slump

21 Feb 2013

Boiko Borisov’s government fell after protests against electricity prices and low living standards. Its track record included small budget deficits and moderate taxes. But the economy, linked to a deflating euro zone, has shrunk since 2008. Five-year recessions make people angry.

Euro zone enjoys rays of economic light

19 Feb 2013

There is still dark news around, for example falling GDP at the end of 2012. But that is the past. A survey shows growth returning to Germany, the currency area’s strongest economy, while a narrowing current account deficit is a sign of adjustment in Greece, one of the weakest.

Two reasons to cheer Cyprus’s inconclusive poll

18 Feb 2013

Weekend elections may not have been decisive, but they demonstrated a critical pro-European consensus. Cypriots accept that a bailout is worth some degree of pain. Meanwhile, Europe’s cautious readiness to support Cyprus shows it’s not complacent about “too small to fail”.

Counterpoint: The UK would be mad to join the euro

15 Feb 2013

When Edward Hadas reviewed the arguments on Britain joining the single currency, he said the UK’s economic position would be improved by membership. But why sign up to a project which remains flawed, even after the latest anti-crisis measures?