Fiscal Policy

Euro zone rediscovers sloppy fiscal policy

15 Oct 2015

Deficits are creeping up in Spain, Italy and even growth star Ireland. Reasons include easy money and pre-election spending. As yet, the gaps aren’t dangerously big. What’s more worrying is poor spending decisions, slowing reforms and fiscal dissonance between member states. 

Madrid could go from star pupil to class dunce

9 Oct 2015

Spain is likely to miss its EU-agreed budget deficit targets this year and the next. Arguably, the bar was set too high and economic growth is quite promising. Even so, Spain can do more to put its finances on a more sustainable path. 

Emerging market debtor crisis likely and needless

1 Oct 2015

An IMF study shows that emerging market borrowers have taken full advantage of stimulative post-crisis monetary policy. Higher rates are set to bring more defaults and a liquidity squeeze. Such woes could be avoided easily, if companies and investors turned away from debt to equity.

Draghi lacks arrows to hit ECB’s inflation target

30 Sep 2015

Euro zone consumer prices are falling again, putting near-2 percent inflation further out of central bank President Mario Draghi’s reach. He could ramp up asset buying, but inflation seems ever less responsive to monetary policy globally. Higher prices might be beyond his gift. 

Hollande risks political hara-kiri for French good

29 Sep 2015

France’s Socialist government is trying to push through the sort of spending cuts and regulatory reforms which have eluded centre-right predecessors in the past. President Francois Hollande may have to wait for posterity to thank him. Today’s voters probably won’t.

Edward Hadas: Migration unpicks globalisation myth

23 Sep 2015

Some economists see the unexpected inflow into Europe as an easy win, adding to GDP and countering ageing. But those changes hardly matter. More important is that migration challenges the idea of a global economy. Political borders still set the economic agenda.

Chicago’s lack of crisis makes fiscal rehab harder

21 Sep 2015

Mayor Rahm Emanuel wants a big property tax hike to shore up underfunded pensions. It’s an important move to get the city out of a $40 bln hole. Perversely, without lenders freaking out, as happened to New York in the 1970s and Detroit more recently, the job is actually harder.

Europe’s fuzzy capital markets union takes shape

4 Sep 2015

The European Commission is mulling a directive to harmonise member states’ various insolvency regimes. If common principles can be nailed down, bankruptcy will get smoother. And the Juncker commission’s goal of better integrated capital markets would have a hope of success.

IMF misses chance to help global policymakers

3 Sep 2015

The lender’s warning on global economic risks lacks what policymakers need: insight into what’s happening to China and why market ructions have been so severe. G20 finance officials heading for Turkey need meatier, more challenging views than the IMF seems prepared to give.

Poland makes bank investors political playthings

1 Sep 2015

Warsaw could force lenders to cough up $5.9 bln to relieve borrowers with Swiss franc mortgages not obviously in distress. With elections looming, the party ahead in the polls wants to tax banks’ balance sheets. It may be pure politics, but the danger is that foreign money flees.

Hugo Dixon: Greek election may reopen can of worms

31 Aug 2015

Given that no party is likely to emerge from next month’s vote with a majority, it may be hard to form a strong government that can implement the country’s new bailout deal. There’s even a risk that there will be yet more elections. That could tip Greece back into crisis.

Bondholders escape Ukraine with only mild scratch

27 Aug 2015

War-torn Ukraine has agreed a 20 percent haircut with a group of rebellious creditors. That’s half the loss Kiev originally wanted. Yet it’s not much of a victory for lenders either: with the economy in tatters and doubts continuing, creditors will be lucky to escape another hit.

Markets are a test of central bankers’ backbone

27 Aug 2015

Equities are rallying after a Fed official cast doubt on the need for a September rate rise. China’s slowdown and sliding commodities may warrant circumspection among global central bankers. But market gyrations don’t. Monetary policy inaction should be for the right reasons.

China’s sensible rate cut sends dangerous signals

25 Aug 2015

The central bank has lowered interest rates by a quarter point and reduced the amount lenders must hold in reserve. It helps ease the slowdown and offsets capital outflows. But by responding to two days of stock market turmoil, policymakers run the risk of stoking moral hazard.

Markets fear central bankers are only human

20 Aug 2015

Unexpected events like China’s devaluation and commodity price drops are having a surprisingly big effect on long-range market inflation expectations. Previously, investors tended to look past such phenomena. But trust in policymakers’ ability to offset shocks is at a low ebb.

Rebellious Germans ignore Greek silver lining

19 Aug 2015

German Chancellor Angela Merkel is facing a revolt from her own party over the Greek bailout. The fear that Greece is a bottomless pit is fair. But it’s not all lost money: nearly a third of the 86 bln euro loaned will repay debt to public creditors, including Germany.

Hugo Dixon: Greece may not need debt haircut

17 Aug 2015

No single measure, such as debt to GDP, adequately captures how unsustainable Athens’ balance sheet is. Most other yardsticks show Greece needs debt relief. But cutting the face value of its borrowings is probably not required.

Ditching Dilma would bring Brazil new problems

14 Aug 2015

Many Brazilians want to impeach President Rousseff, unpopular due to an ailing economy and corruption scandals. But any bid by lawmakers to oust her would raise political uncertainty, discouraging investors. Finding a way to get along would be a smarter option.

Skills deficit may hamper UK jobs growth

12 Aug 2015

Britain’s labour market seems to be doing pretty well. Unemployment has fallen and wages are rising at a decent clip. But scratch the surface and there’s a nascent issue. New data shows a large number of vacancies, especially in sectors that require more technical proficiency. 

Greece deal leaves euro intact but fragile

11 Aug 2015

Athens may get its bailout after Prime Minister Alexis Tsipras gave in to reform demands. Quitting the euro is much less likely. It suggests currency union can bear the near-exit of a peripheral state. Economic rifts between core members, though, remain the big future risk.