Euro Zone

Rome’s funding pain eases, but is not cured

28 Dec 2011

Italy’s funding costs halved in auctions on Dec. 28, as its bond market started to behave a bit more normally. Cheap ECB funds may have helped, as well as Rome’s new commitment to austerity. But while Italy has taken one step back from the abyss, it still faces huge hurdles.

Bini Smaghi’s ambiguity advice is welcome

23 Dec 2011

The departing ECB board member says there should be no theological hang-up about quantitative easing, but insists that the institution should stick to “constructive ambiguity”. This is a welcome reminder that absolute transparency isn’t a must for a central bank.

ECB liquidity orgy heralds two-tier banking system

21 Dec 2011

The European Central Bank’s 489 billion euros of cheap three-year liquidity means EU banks can avert a short-term crunch. But the non-users will gain in the long term. Even if lenders don’t engage in a huge carry trade, private sources of funding could stay away for a while.

Europe’s ELAstic money: a guide for the perplexed

16 Dec 2011

Banks in Ireland, Greece and elsewhere are receiving life support from their local central banks in addition to loans from the ECB. This emergency liquidity assistance is cloaked in secrecy, but poses risks for the euro zone. Breakingviews explains what is going on.

Noyer’s ratings-rage is right for wrong reason

15 Dec 2011

The Bank of France chief is enraged by the prospective downgrade of his sovereign. The UK should get snipped first, he says. The fury is excessive, but not crazy. While Britain’s creditors may face a lower risk of nominal default, they’re in more danger of default-by-inflation.

ECB gives EU banks short-term gain, long-term pain

15 Dec 2011

Stretching the central bank’s liquidity facilities to three years reduces the risk that banks will collapse or rapidly shrink their balance sheets. But the real prize is to encourage private investors to buy bank debt again. The ECB’s largesse actually makes this less likely.

Euro crisis: it’s fiscal mismanagement, stupid

15 Dec 2011

Some distinguished economists say the euro zone has to do more than resolve some fiscal challenges. The reasoning is that intra-zone trade deficits are the real problem, and zealous budget-balancing the wrong solution. The analysis is only partly right – and much too gloomy.

EEA could be right place for UK in Europe

15 Dec 2011

After the Cameron veto, Britain’s status in the EU is precarious. It won’t move forward into the euro zone and cannot really turn its back on Europe. Some losses are inevitable, but the UK could gain by beefing up the European Economic Area – a fairly happy half-way zone.

No happy euro Christmas for U.S. markets

14 Dec 2011

Last week’s European summit in the end did little to address the region’s immediate problems. That’s dragging down the euro, commodities - oil and gold by 5 pct on Wednesday - and U.S. stocks. It could all make for skittish trading as investors aim to avoid year-end surprises.

Fiscal sovereignty largely overrated in euro zone

13 Dec 2011

EU politicians are reluctant to give a higher authority veto power over euro members’ budgets. They don’t get it. They should be grateful for the discipline, which bond markets failed to provide for years. Besides, more valuable types of sovereignty are already gone.

Anglo-Saxon law rare winner from euro crisis

13 Dec 2011

Banks are worried that assets will be redenominated into less valuable new currencies if the euro implodes. There is little they can do to limit risks on existing bonds and loans. But they may resort to English and New York courts to protect themselves from future losses.

France is serial loser in unfolding euro drama

12 Dec 2011

In spite of appearances, France has lost out to Germany on all the important arguments about how to manage the euro crisis. Nicolas Sarkozy’s theatrics have created diversions. But they can’t hide the fact that what Berlin wants, Berlin gets.

Hugo Dixon: UK’s self-immolation beggars belief

12 Dec 2011

The government’s clumsy attempt to extract concessions from euro zone countries in their time of need has set off a chain reaction which could undermine Britain’s interests and even drive it out of the EU. This vicious cycle must be stopped.

UK’s euro isolation may backfire on City of London

9 Dec 2011

David Cameron says he was defending Britain’s financial industry when he opted out of the pan-European deal to save the euro zone. But the prime minister’s stand leaves the City exposed in Europe - and at home. And it further diminishes the UK influence over designing new rules.

U.S. bond markets not immune to bank wariness

9 Dec 2011

Bonds give American companies an alternative to bank loans – one that European counterparts often lack. But banks lubricate U.S. bond trading too. Their reluctance to use their oil cans has jammed up the $7.7 trln market. This mini credit-crunch pain may, however, bring gains.

Sarkozy courts danger with ECB-bank-sovereign plan

9 Dec 2011

The French president says banks will use cheap ECB funds to pile into sovereign debt. That would be convenient for stressed governments, but tough on banks. And any hint of compulsion would scare investors. Still, political arm-twisting may make it hard for some banks to say no.

Euro zone gets tighter as Europe splits further

9 Dec 2011

Leaders have agreed strong fiscal reforms in spite of the UK refusing to go along with changes to EU treaties. The hope is that the long-term plans will reassure investors. For now, the best way to regain credibility would be for governments to swiftly implement their decisions.

EU bank recap alone won’t restore confidence

8 Dec 2011

Forcing European lenders to raise 115 bln euros in extra capital is an improvement on previous efforts. But regulators will have to be vigilant to make sure banks don’t hit the targets by shrinking loans. And trust will only return when euro zone governments fix their debt woes.

Draghi pours cold water on euro zone grand bargain

8 Dec 2011

The European Central Bank has cut interest rates and taken steps to help banks in order to fend off a looming recession. But by insisting on the “spirit” of the EU’s founding treaties, its president has signalled that governments can’t count on him to be the euro zone’s saviour.

Dual Europe threatens single market

8 Dec 2011

France and Germany want the euro zone to integrate further, and the UK sees this as an opportunity to shrink Brussels’ powers. But both sides should think hard before they go for a split Europe. The main victim will be the single market they say they want to preserve.