Euro Zone

Euro zone gets tougher in bid to soften Germany

23 Nov 2011

Berlin’s euro zone partners are rushing to agree on the fiscal reforms that Angela Merkel has demanded. They hope to soothe her fears about future probity, so that Germany becomes more flexible right away. If all goes well, the euro will be stronger and the ECB more active.

France, Germany could agree on ECB’s euro role

22 Nov 2011

Berlin stands right behind the ECB’s reluctance to engage in quantitative easing. Better to let governments take care of reform and rescue. Paris has joined the chorus asking the bank to reconsider, but France isn’t on a collision course with Germany. It all comes down to timing.

Forget PIGS, Europe’s problem is broken EEGs

21 Nov 2011

Now that the crisis has moved beyond Portugal, Ireland, Greece and Spain, the euro zone needs a new acronym to describe its troubled countries. With all but one of the single currency’s members feeling the strain, it’s time to start worrying about EEGs: Everyone Except Germany.

IMF could unlock ECB’s war chest

21 Nov 2011

The European Central Bank is reluctant to fund euro zone governments for fear of breaking its own rules and EU treaties. But the law could allow it to channel cash via the International Monetary Fund. That may sound dodgy, but could be a safer way for the ECB to fire its bazooka.

Euro split fears are self-fulfilling

21 Nov 2011

Banks and investors are beginning to act as if the euro zone might fall apart – which, in turn, makes such a break-up more likely. Politicians and the ECB need to restore belief that the single currency is here to stay; otherwise it could unravel pretty fast.

Spain’s next government: now for the hard part

21 Nov 2011

Mariano Rajoy’s People’s Party has won an absolute majority. The new prime minister has made all the right commitments, but markets are sceptical. He needs to show he’s serious even before he takes office in a month. He – and the markets – also need support from the ECB.

EU-like tricks loom as U.S. budget deadline nears

18 Nov 2011

The “super committee” has till Monday to reach consensus. That looks hard, so the temptation to fiddle a way to $1.2 trln of cuts is intense. Doing so would ape how states fudged euro entry rules. Markets and the public will probably be far less tolerant this time.

What’s stopping the ECB firing its bazooka?

17 Nov 2011

The central bank is facing mounting pressure from around the world to act more freely as a lender of last resort to euro zone governments. The ECB has been reluctant to move. But even though it is hemmed in by law, ideology and past positions, it does have wiggle room.

Markets start to reflect euro zone’s darkest fears

16 Nov 2011

Government bond yields across the single currency are showing signs of severe strain. Only Germany is viewed as a reliable safe haven. An Italian default and euro zone breakup may still be unlikely. But investors are now clearly factoring such a scenario into their calculations.

Ethical economy: euro caught in historic battle

16 Nov 2011

The current crisis is not simply about finance or even politics. It’s about the direction of history. The great forces that brought Europe together, fear of war and hope of prosperity, have lost strength. Something more relevant is required to preserve the euro from nationalism.

French election could help propel reform

16 Nov 2011

The presidential contest could waste precious time – and scare investors – by unleashing rival populist proposals. But if Sarkozy and Hollande agreed that more growth is needed, the debate on the how best to reform the economy would be productive for the nation and the euro.

Spanish debt storm piles the pressure on Rajoy

16 Nov 2011

At current yields, Spain would need a primary surplus of 1.8 percent just to keep its debt/GDP stable in the long run, according to a Breakingviews calculator. Madrid is forecast to have a deficit of 3.5 percent in 2012. The next PM will need to re-establish confidence fast.

Not saving Italy works best for ECB

15 Nov 2011

The central bank could easily keep Italy afloat. Printing money on the Bank of England’s scale would fund the government for all of 2012. But playing tough suits the ECB. Berlusconi is out and the chances for serious reform are better. Still, the pressure to print won’t go away.

Greek standoff has explosive potential

15 Nov 2011

The new coalition’s second party says it would be humiliating to sign a declaration of support for the latest bailout as demanded by the European Commission. If neither side backs down, Athens will be heading for a disorderly default the rest of Europe is ill-prepared to contain.

European bond buyers: often wrong, never in doubt

14 Nov 2011

Bond market investors are a fickle lot. They were too complacent for years and now they may be too demanding – though their reformist zeal is welcomed by most. As a result, politicians and the ECB, which might have anticipated the risks, have more complex problems to deal with.

Euro zone mustn’t rush towards two-speed union

10 Nov 2011

Paris and Berlin want the monetary union to integrate further, and even talk about a “core” euro zone. A two-speed EU is already emerging. But forcing the pace will needlessly antagonise non-euro members. And reforms in the pipeline should first be given a chance to work.

EU pressure on Italian powder keg is a risky game

9 Nov 2011

The euro zone and the ECB are playing with fire in Italy. They hope rising yields will force Rome to act. But a meltdown of the world’s third-largest bond market could have damaging consequences. Serious contagion is being averted for now, but the game needs a speedy end.

Euro zone shouldn’t revel in technocratic fantasy

9 Nov 2011

Italy and Greece may soon be ruled by technocrats with expertise but no political clout. That’s the wrong mix. In crisis, tough reforms must be backed by the legitimacy of a national unity government. Technocracy may look tempting, but you can’t take politics out of government.

Europe’s sovereign SPIVs will need slick salesmen

7 Nov 2011

The euro zone hopes special purpose investment vehicles can help leverage up its EFSF bailout fund. But investors are already turning their noses up at EFSF debt. The euro zone will need to persuade buyers that SPIV bonds are super low-risk government debt, not financial alchemy.

Greece’s zombie banks need rapid recaps

7 Nov 2011

The political crisis in Athens has triggered further deposit erosion and a terrible liquidity squeeze at the country’s lenders. With the ECB unwilling to provide more cash, the Greek central bank has thrown them a new emergency lifeline. But extra capital is also needed – fast.