Fiscal Policy

Japan is right to choose growth over higher taxes

1 Jun 2016

Prime Minister Shinzo Abe’s decision to delay a planned consumption tax increase is a sensible gamble. While the budget deficit may now fall more slowly, a hike could have jeopardised growth. This would have posed an even bigger risk to the long-term health of public finances.

Trump tries morphing political fantasy into reality

12 May 2016

The White House hopeful had a kumbaya moment with GOP leaders. He has also dialed back some of his ideas on taxes, entitlements and U.S. debt. Broadening his appeal is key to wooing party elders, donors and voters. The biggest obstacle to the balancing act is Trump himself.

Euro zone needs better glue than Canadian kindness

29 Apr 2016

Portugal’s eligibility for ECB bond-buying hangs on the rating of Toronto-based agency DBRS. Effectively, the ECB has outsourced the decision of whether to cut off a country. It works to a point: it’s hard to imagine the ECB abandoning Italy or France whatever their ratings.

Will retirees get just 4 pct long-term returns?

28 Apr 2016

That’s a scenario laid out in a new McKinsey Global Institute report. The idea is that returns in recent decades – and expectations that are still above 7 pct – have been inflated by effects that are now disappearing. If so, Gen Xers will retire even poorer than they expect.

Reserve managers take risks at everyone’s peril

25 Apr 2016

Sub-zero rates are forcing those who manage central bank war chests to invest in riskier, less liquid assets, a new survey shows. Venturing out of their comfort zone could make these closely-watched investors twitchier. Bad news given their outsize influence on market sentiment.

Schaeuble plays risky political games with ECB

13 Apr 2016

Low European rates fuel support for the far right, Germany’s finance minister says. Such sniping jars with Germany’s usual passion for central bank independence. Wolfgang Schaeuble may be aiming to attract disgruntled voters rather than slam the ECB. His strategy could backfire.

Portugal can gain if it loses Novo Banco battle

5 Apr 2016

Bondholders are suing Lisbon’s central bank, arguing losses imposed on the stricken lender were arbitrary. Losing the case would complicate Novo Banco’s turnaround. But enforcing the principle that governments should use bail-ins fairly would help all banks, even in Portugal.

Hollande is in worse position than French economy

4 Apr 2016

Unemployment keeps hitting new highs but at least consumption and growth are holding up pretty well. President Francois Hollande’s plight is far more parlous. High-profile missteps are taking a toll on both his own political prospects and those of his ruling Socialists.

Draghi offers gift euro zone doesn’t need

11 Mar 2016

The ECB chief will soon buy corporate bonds. This should make borrowing cheaper for banks and small companies. But bond yields are already low and companies may use Mario Draghi’s largesse for M&A and share buybacks rather than useful investment. A small programme may be best.

Draghi pulls a risky rabbit out of his hat

10 Mar 2016

The ECB chief cut rates, said non-bank corporate bonds could qualify for a larger asset buying programme, and flagged new long-term loans. The good news is Mario Draghi is willing to go the extra mile. The bad: he may encourage excessive risk-taking without lifting inflation.

China hasn’t yet won fight against FX flight

7 Mar 2016

Foreign exchange reserves shrank by less than $30 bln to a still-massive $3.2 trln in February. The decline is slower than in recent months, suggesting efforts to talk up the yuan and discourage outflows are working. Long-term pressure on the currency, though, remains downward.

Spanish debt hangover easing but still painful

7 Mar 2016

Private debt has been falling since 2010 but is still high at 175 pct of GDP. Over-indebted companies are finally cleaning up balance sheets. Lenders may soon be able to increase net lending, which would be good for their earnings – though maybe not for a still-leveraged economy.

Portugal squall maps new territory in euro crisis

24 Feb 2016

The state’s left-wing government has reassured bond markets by passing an emergency budget and buying back debt. Yet the recent spike in bond yields shows Portugal remains vulnerable to high debt and low growth. And it shows that the calm from the ECB’s bond-buying can be broken.

Nordic bank low-rate survival kit is hard to copy

18 Feb 2016

Swedish and Danish banks have been dealing with negative policy rates for a while. But they have fee-driven business, low costs and strong capital ratios. They offer only a partial guide for European or Japanese peers for whom sub-zero interest rates are more novel.

Oil slump seriously harms Saudi Arabia’s health

1 Feb 2016

Big cuts to healthcare spending show the many ways in which low prices are putting strain on the Kingdom’s economy. Treating Saudi’s population of diabetics would absorb 15 percent of oil export revenue at $20 a barrel. Private investors will be needed to fill the gap.

Italy’s bad bank fit for its one real purpose

29 Jan 2016

The new plan to get bad loans off banks’ books is mind-bendingly complex. But the inputs are quite simple: banks’ desperation, investor greed and rating-agency whims. The lender where it’s most likely to work is Monte dei Paschi di Siena, which happens to be Italy’s biggest woe.

EU tax reform is flawed – get used to it

28 Jan 2016

European measures to kybosh flagrant corporate tax avoidance schemes look broadly welcome. Without global agreements, though, disparities will always let the likes of Apple and Alphabet whittle down bills. And binding sovereign countries to one approach is akin to herding cats.

Draghi’s words speak louder than his actions

21 Jan 2016

European Central Bank President Mario Draghi has driven euro and regional bond yields down by dangling the prospect of policy easing in March. But as with the bond-buying he unveiled a year ago, markets may be less impressed when the actual policy details emerge.

Sweden can be trailblazer for global rate-setters

19 Jan 2016

Small countries sometimes lead the way in monetary policy. Sweden can begin to challenge the global obsession with inflation-targeting by pursuing central bank reforms outlined in a new report co-authored by former Bank of England chief Mervyn King. This shift is overdue. 

Gulf states are on a collision course with tax

23 Dec 2015

Wealthy populations in Arab sheikhdoms have mostly been spared taxation. Falling oil prices make that untenable. Laws are being drafted in the UAE for new levies on companies and consumers to offset falling revenue. Other countries in the region will follow.