Euro Zone

Euro zone spells bazooka EFSF-ESM-CIF-IMF-CAC-ECB

7 Dec 2011

The monetary union’s leaders are discussing bringing forward the ESM rescue fund, raising 500 bln euros. The alphabet soup may soothe markets, but the point is to provide the ECB with a political cover to step up interventions. The effort may not be enough to restore peripheral solvency.

Investors may decide to let the euro live

7 Dec 2011

George Soros showed that there’s money to be made breaking fixed exchange rates. Destroying the euro is different; that could wreck the global economy. This fear may explain the markets’ move from pessimistic to optimistic interpretations of fairly consistent euro zone news.

S&P warning won’t change euro zone equation

6 Dec 2011

The risk of a mass ratings downgrade won’t be the main concern of euro leaders at this week’s summit. Bond yields were already signalling some distress, and the collective threat removes some of its sting. Governments’ main problem is convincing the ECB they’re serious at last.

ECB bazooka may be short on credibility ammo

5 Dec 2011

Markets are rallying on hopes that the ECB will ramp up its purchases of euro zone government debt. To be successful, the intervention will need to put a ceiling on yields, and enjoy political support. The danger is that investors view ECB buying as another opportunity to sell.

Euro Disziplin may store up trouble

5 Dec 2011

Germany’s insistence on fiscal discipline enshrined in a treaty may pave the way for a short-term fix for the euro crisis. But giving Brussels the power to override national budgets involves a loss of sovereignty that could be deeply unpopular with the people.

The real UK plan B: protecting against euro chaos

1 Dec 2011

Pundits say Britain needs an alternative strategy to boost growth. What’s really needed is a contingency plan to handle a euro explosion. The central planks should be for the government to keep adequate fiscal firepower to handle a crisis and to recapitalise the country’s banks.

Euro breakup could be relatively easy – at first

1 Dec 2011

Industrialists could cope with a return of national currencies. They used to manage and can relearn the tricks of the trades. But banks would be crushed, economies soured and the big challenge – keeping the European project intact – made much more difficult.

Euro IMF scheme raises four questions

1 Dec 2011

The latest wheeze for solving the crisis is for national central banks to lend money to the IMF which will then pass it to Italy and possibly Spain. But how much money will be available, who will provide it, where will they get it or who will bear the risk?

Poland fears euro death and mulls euro membership

1 Dec 2011

Poland is calling on Germany and the ECB to prevent a euro collapse that would be devastating for it and central Europe as a whole. But while fearing the euro’s demise Poland remains drawn to joining the single currency. The case for staying out is stronger.

Governments are now world’s financial engineers

30 Nov 2011

The crisis exposed the trouble with complex leverage games in the private sector. But Western authorities, undoubtedly abetted by bankers, have embraced high finance for everything from housing to Europe’s rescue fund. Such finagling, however, is harder in tough markets.

Bagehot to cenbanks: liquidity needn’t be cheap

30 Nov 2011

The 19th-century British financier believed in lending freely during crises but at high rates. Wednesday’s coordinated action by the ECB, the Fed et al boosted liquidity and reduced its cost. That could worsen imbalances. A Bagehotian approach would be workable and less risky.

Euro can still gain from bondholder discipline

30 Nov 2011

As the zone charges ahead with plans to impose fiscal rigour by bureaucratic diktat, France and other countries want to drop plans that would enhance scrutiny by the bond markets. That would be a mistake. Keeping investors on their toes would help avoid future crises.

France isn’t ready for recession

29 Nov 2011

The government’s budget is based on rosy forecasts and neither of the two leading presidential candidates is willing to speak of more austerity. But that is exactly what might be required if high government bond yields tip the euro zone into a full-blown recession in 2012.

Sky’s the limit on euro zone disaster scenarios

28 Nov 2011

The Lehman failure set a stupidly grim precedent. Fear cut trade and froze finance, amplifying what should have been a manageable adjustment into a big recession. It could be worse if the euro went pop, since governments are already short on credibility. But despair is premature.

Devil still in the detail for souped-up EFSF

28 Nov 2011

At best, plans to leverage up the bailout fund are part of the solution to the euro crisis. But for the EFSF to fulfil even that limited role, investors will need to believe the complex structures work and that their interests can be reconciled with those of member states.

Don’t leave plan B too late

28 Nov 2011

Germany is determined to try its plan A for solving the euro crisis, though it has little chance of working. While Berlin, the ECB and the Bundesbank aren’t totally opposed to a plan B, by the time they implement one, the zone could be in deep recession or even have exploded.

Italy, Spain may be best off with fast trip to IMF

28 Nov 2011

If market confidence can’t be restored rapidly, Monti and Rajoy – the countries’ new PMs – should consider asking for help while they can still blame their predecessors. The snag is the IMF doesn’t have enough cash. So its resources would need beefing up, probably by the ECB.

Germany needn’t fear common euro zone bonds

28 Nov 2011

Investors have begun to worry that the country will have to backstop other countries’ debts. Common bonds would end Germany’s days of ultra-cheap borrowing, but if it was part of a genuine fiscal union funding costs need not go sky-high. A botched job could be costly, though.

ECB funding aid needs to be wider, not just longer

25 Nov 2011

The central bank is considering offering longer-term loans to the euro zone’s stricken lenders. Bankers also want it to broaden the pool of collateral it will lend against. Though the ECB will not want to get swamped, easing some rules might help prevent small banks going bust.

Investors start to notice Germany is in euro zone

23 Nov 2011

Neither an undersubscribed Bund auction nor yields crossing the 2 percent threshold is a sign of total panic. Still, Germany is looking less like a safe haven. That makes sense - it would struggle if the euro came unstuck. All the more reason for EU leaders to stop squabbling.