Fiscal Policy

Central banks won’t prop up the euro

1 Apr 2015

The single currency’s share of global foreign exchange reserves is at a 12-year low. Reserve managers haven’t bought euros to compensate for the fall in its value. Central banks’ lack of commitment to balanced forex portfolios leaves the euro free to fall further.

BoE will test banks for deflation ECB didn’t see

30 Mar 2015

The darkest scenario of British banks’ annual stress tests sees prices fall for over a year at home, and nearly four in the euro zone. Last year the ECB didn’t factor in deflation risk at all. The Bank of England is obviously freer to consider the possibility of its own failure.

Hefty German wage hikes make ECB’s life easier

30 Mar 2015

German unions are proving a key ally for Mario Draghi. Civil servants and chemical workers have followed metalworkers in securing pay rises significantly above inflation. Real wages will keep rising, fuelling a consumption-driven recovery and softening deflationary forces.

UK gets its tax incentives in a muddle

18 Mar 2015

The latest budget used even more blatant taxpayer-funded subsidies for homebuyers, a further transfer from earners to owners. It also encumbered banks, curbing their ability to lend and grow capital. It’s an odd way to advance the concurrent goal of a stable financial system.    

British economic triumphalism is premature

18 Mar 2015

Chancellor George Osborne used his pre-election budget to argue that Britain is seeing a balanced recovery and its citizens are better off. Upward growth revisions helped and UK stocks rose. In fact, GDP gains haven’t been impressive. And most of the UK’s big problems remain.

Central bankers struggle to follow good advice

18 Mar 2015

Their global club, the BIS, is good at spotting trouble. Current worries include risk-taking enabled by easy money and illusory market liquidity. But rate-setters have to think domestic, not global. Their parochialism makes preventing crises much harder than predicting them.

London doesn’t need to stress-test foreign banks

18 Mar 2015

UK regulators deny they are planning U.S.-style formal exams for overseas banks. They will be reluctant to do anything to compromise the City’s attractiveness. But global resolution requirements for lenders to place bail-in capital in London mean they may not have to.  

Madrid acts late on private debt problem

17 Mar 2015

Spain’s new political parties have thrown the spotlight on the country’s private debt, equivalent to 180 pct of GDP. Now the government is passing a law to help indebted individuals reduce borrowings. It’s the right step, but largely formalises what banks were already doing. 

Euro zone recovery may dampen reform drive

13 Mar 2015

Governments are slowing reform across the euro zone. Brighter economic prospects and loose monetary policy seem to lessen the urgency for tough political choices. Yet the opposite is true: better times should make reform easier and less costly.

Hugo Dixon: Is the ECB being unfair to Greece?

11 Mar 2015

The new left-wing government complains the euro zone central bank is meting out tougher treatment than it gave the previous right-wing administration. The difference is justified since Athens isn’t working well with its creditors. If that changes, the ECB should be more flexible.

Mark Carney’s triple-bind is recipe for BoE stasis

11 Mar 2015

The UK economy is doing pretty well, which argues for a rate hike. But sterling’s export-denting rise against the euro is a reason to consider extra stimulus. And risks to the housing market abound either way. The Bank of England chief may just leave policy on hold for a while. 

EU bonus policy becomes a comedy of errors

5 Mar 2015

Capping variable compensation makes scant sense for bankers; it makes even less sense for asset managers. Doing so, as European authorities are now proposing, will do little for stability but push up compliance costs. The final irony is EU lawmakers didn’t even want it. 

Edward Hadas: Negative rates and postmodern money

5 Mar 2015

Investors now pay Germany to take their money for five years. It’s a bizarre result of today’s fluid understanding of money, in which notes and coins are the real aberrations. Postmodern finance might work, but it’s risky, high-handed and not fair to savers.

ECB’s clearing house defeat is good for Europe

4 Mar 2015

The European Court of Justice has nixed the central bank’s efforts to locate central counterparties in the euro zone. The ECB’s desire to closely monitor clearing is understandable. But undermining the EU single market would have been a practical and political mistake.  

India’s infrastructure push could be envy of West

2 Mar 2015

The government has pushed back its deficit reduction target in order to boost spending on roads, rail and power. New Delhi is now unmistakably pursuing a public investment-led growth strategy. It’s an opportunity that rich nations, which can borrow far more cheaply, are missing.

Japan’s inflation test: Mapping the road to 2 pct

23 Feb 2015

The central bank may yet hit its elusive goal, provided consumers spend, workers are productive and bond investors stay calm. A new Breakingviews calculator shows how much inflation Japan can expect after money-printing has ended. A 2017 sales tax hike would make the road harder.

Edward Hadas: What Greece teaches emerging markets

18 Feb 2015

Forget the crisis. The euro is almost irrelevant to the serious developing economy issues which face Athens: weak institutions, dysfunctional politics and excessive capital flows. As Greece shows, outsiders can help or hurt, but these problems are ultimately domestic.

Investors still bet on a rational Greek outcome

17 Feb 2015

The market impact of Greek bailout talks breaking down has been subdued. The history of euro zone negotiations points to last-minute compromise, as does economic logic. The danger is that markets are allowing financial hope to trump political reality.

Sweden shows ultra-easy policy is contagious

12 Feb 2015

The Swedish central bank has cut repo rates below zero. It’s also buying $1 bln-plus of sovereign debt. With plentiful stimulus in the euro zone, U.S. and UK financial systems, states that don’t take a tough anti-deflation stance risk seeing their currencies spiral.   

Greece is creating room for deal with euro zone

10 Feb 2015

Athens is hinting it will accept most of its bailout programme and wants to change the rest. The government insists on more fiscal leeway and a debt swap. The negotiations with other euro zone members will be tough. But at least there is a basis for reasonable conversation.