Euro Zone

Central bankers have more cards up their sleeves

29 Apr 2020

Fed Chair Jay Powell and his peers have fashioned new tools to fight the Covid-19 crisis. In future downturns, they could copy the BOJ’s stock buying and, in extremis, consider financing governments directly. Only surging inflation or overt political meddling will hold them back.

Christine Lagarde will need an even bigger bazooka

29 Apr 2020

The ECB boss is snapping up so many bonds to keep Italian and other southern euro zone debt yields in check that she may soon have to augment the 750 billion euro purchase plan unveiled less than two months ago. The more she does, the more squabbling time she buys EU leaders.

European banks’ bad-debt pain threshold

27 Apr 2020

The continent’s major lenders have bigger capital buffers and are getting help from regulators. However, their balance sheets are expanding and income is dropping, while many borrowers are at risk of default. This calculator shows what level of bad loans banks can safely absorb.

Crisis gives ECB cover to cast off rating shackles

22 Apr 2020

Central banks have historically steered clear of junk bonds. But the Federal Reserve’s move to buy debt rated below investment grade gives its European counterpart an excuse to follow. Moving swiftly would help it avoid a damaging crisis if the Italian government is downgraded.

Guest view: Mutual debt is spectre haunting the EU

22 Apr 2020

European leaders meet on Thursday to discuss how to tackle the economic costs of the pandemic. Collective borrowing is the most contentious item on the agenda. Carlo Altomonte of Bocconi University and Fabrizio Pagani of Muzinich explain how a joint “recovery fund” might work.

Spain finds risky fix for $1.6 trln EU virus fund

21 Apr 2020

Prime Minister Pedro Sanchez wants the European Union to issue perpetual debt to fight the Covid-19 crisis. Allocating funds as grants rather than new loans would ease the burden on indebted sovereigns. But using untested taxes may spook bondholders and northern member states.

EU virus aid is no panacea for Italy’s debt woes

17 Apr 2020

The country ravaged by Covid-19 could draw on an EU euro bailout fund to help manage the pandemic. But interest savings look small, unless the ECB also helps. Political resistance to use such funds means Rome probably won’t use the aid until it faces a bond market crisis.

Dixon: Reports of euro’s death greatly exaggerated

14 Apr 2020

Both pro- and anti-Europeans are saying the coronavirus pandemic may tear the European Union to shreds and destroy its single currency. In fact, the bloc is muddling through.

Breakdown: Europe’s coronabond conundrum

7 Apr 2020

The pandemic is stretching state finances, particularly in heavily indebted countries like Italy. ECB bond-buying helps; so would clubbing together to provide cheap loans. But it’s not enough. It’s time for the single currency to consider joint bonds. Breakingviews explains why.

EU divisions risk inflating crisis bill

27 Mar 2020

European leaders failed to agree a joint fiscal response to the pandemic. Despite European Central Bank support, EU inaction makes it harder for Italy and other indebted euro zone nations to ramp up spending to support their stricken economies. That will raise the ultimate cost.

ECB has a nascent euro zone crisis to head off

18 Mar 2020

The yield spread between German bonds and French or Dutch ones has suddenly widened. That, more than a blowout in the gap with Italy, was the sign in 2012 that markets were questioning the single currency’s future. ECB boss Christine Lagarde has little time to nip it in the bud.

ECB’s stealth easing enlists banks in virus fight

12 Mar 2020

President Christine Lagarde left interest rates unchanged but used other tricks to support the euro zone economy through Covid-19. Lenders can borrow at sub-zero rates and dip into capital and cash buffers. They have every incentive to help her limit the damage from the slowdown.

Oil shock gives central banks excuse to be bold

9 Mar 2020

Crude prices plunged days before the ECB meets. While Christine Lagarde and her global peers are supposed to look beyond one-off jolts, inflation expectations have been crushed in a market already gripped by virus fears. That gives rate-setters another reason to be decisive.

Shrinking GDP in Italy is bigger worry than France

31 Jan 2020

Two of the euro zone’s three biggest economies contracted in the fourth quarter. Gallic activity was hurt by strikes over President Emmanuel Macron’s pension reforms and inventory changes. Their impact will fade. The weakness of Italy’s domestic demand is a longer-term problem.

ECB gives banks a reason to sort themselves out

28 Jan 2020

Europe’s lenders have stronger balance sheets but aren’t very profitable, the regulator’s annual review shows. Executives blame low interest rates and strict capital rules, but these won’t change soon. If banks are too slow to cut costs or merge, they face even closer scrutiny.

ECB feuding will have a new front in coming year

11 Dec 2019

Christine Lagarde took the helm of the European Central Bank with a promise to review strategy. A debate on how to define its price stability mandate will embolden those rate setters who are fed up of ultra-loose policies. The battle will be bitter and played out in public.

European banks get glimmer of regulatory hope

3 Dec 2019

The bloc’s lenders are in the doldrums, partly due to easy monetary policy. But UniCredit’s plans to return 8 billion euros to shareholders point to the benefits of a gentler regulatory approach to capital buffers. Purists may object, but there is a case for placating investors.

German fiscal rethink might backfire on euro zone

13 Nov 2019

ECB boss Christine Lagarde wants Germany and the Netherlands to spend more. Even if she gets her way, the economic benefits for others may be limited. Especially if a northern European rebound lifts the single currency and bond yields, or forces a rethink of easy monetary policy.

ECB decisions would benefit from a bit more light

11 Nov 2019

The central bank’s policy-making process is less formal and transparent than peers. New boss Christine Lagarde could change that by holding formal votes. Publishing the results, as the Fed does, would raise problems. But disclosing anonymous tallies would still be an improvement.

EU banking union needs more than German concession

6 Nov 2019

Finance Minister Olaf Scholz is willing to consider an EU deposit insurance scheme. Countries like Italy may balk at some of his conditions. That such a sensible plan can take so long to come to fruition shows how far Europe is from rational policy making on financial regulation.