Fiscal Policy

Capital controls an unpalatable option for Athens

10 Feb 2015

The risk of a Greek euro exit increases the pressure for capital controls. The policy did less harm than expected in the Cyprus crisis, and would buy time for Athens and its international creditors. The snag is that Greece’s position is weaker, and the politics more toxic.

Easy money loses power to calm market volatility

9 Feb 2015

Central bank liquidity, which was blamed for last year’s eerie cross-asset calm, is still ample. But this no longer assures price placidity. Gyrating commodity prices and concern that the global economy has stopped healing are making investors wary. Volatility can rise further.

German trade numbers hide quiet rebalancing

9 Feb 2015

Behind the record surplus, a readjustment is underway. Strong domestic demand remains a key driver of growth, with real wages and employment rising, while cheap oil is dampening imports. German economic change is slow, but for real.

Spain’s recovery yet to impress Spaniards

6 Feb 2015

The EU lifted its growth forecast for the country to 2.3 pct in 2015, ahead of the region’s average. Low oil prices, the weak euro and tax cuts mean Spain could do even better. But voters are angry about corruption and unemployment - making politics and policy unpredictable.

Memo to Tsipras: How to win over Merkel

3 Feb 2015

Greece’s new government has put forward some sensible ideas in addressing the country’s debt burden. But any deal needs the backing of a reluctant Germany. Some crucial Dos and Don’ts – many of them symbolic, but some substantial – can make it easier to sway Angela Merkel. 

Radical Greek finance minister sounds sensible

3 Feb 2015

Yanis Varoufakis dropped calls for an explicit debt haircut and made plausible proposals on debt and deficits. The “erratic Marxist” is growing into the job. Still, investors and foreign politicians will take some persuading that his government can deliver major economic reforms.

Obama makes deficit control harder than necessary

2 Feb 2015

His new budget increases federal outlays by 6.4 pct a year. So to rein in borrowing, tax revenue has to grow at over 7 pct annually. Of course some proposals are pure politics. But a solid U.S. economy could handle less government spending, taking heat out of the revenue fight.

Russian central bank chooses banks over rouble

30 Jan 2015

A surprise interest rate cut suggests the central bank is more concerned about the economy than the value of the currency. Worries about the banking sector’s solvency could explain the move. The downside: Russia could end up with both high inflation and a deep recession.

Monetary easing is the dominant trend

28 Jan 2015

The vogue in central banks is to reduce the cost of money: at least nine have eased in January. That suits a time of spreading disinflation and poor growth. The Fed, which updates markets today, is sitting tight. So is the BoE. But they may get caught up and delay rate rises.

Currency market still scarred by Swiss trauma

28 Jan 2015

Brutal swings seen just after the Swiss central bank suddenly abandoned its franc cap have faded. But price signals and perplexing moves suggest the extraordinary gyrations left their mark. Singapore’s surprise easing and continued Swiss official musings will add to the jitters. 

Greek banks will have to live hand to mouth

26 Jan 2015

After Syriza’s victory comes a long haggle over debt reduction for Athens. While this drags on, liquidity-short Greek banks have to rely on uncertain funding signed off by the ECB. The struggle to survive will delay dealing with another headache: their mountains of bad debt.

Putin, Piketty and Draghi hit Davos in spirit only

23 Jan 2015

Political and financial leaders attending the World Economic Forum’s 45th annual meeting are buzzing about rampant inequality, the ECB’s quantitative easing and Russia’s conflict with Ukraine. All that’s missing from the Alpine retreat are the three provocateurs of the debates.

Fudge on loss-sharing weakens ECB’s massive attack

22 Jan 2015

At 1 trln euros or more, the European Central Bank’s long-expected bond-buying programme is powerful enough to impress markets and push down the euro. But partial nationalisation of any losses amounts to policy fragmentation. It risks undermining the euro zone’s foundations. 

Markets give Mario Draghi instant reward

22 Jan 2015

The European Central Bank president gave anxious investors more monetary easing than they expected. They responded by giving the ECB’s asset purchase plan a head start. The euro and regional bond yields both fell. Draghi may be smug now, but he still has to push up inflation.

Canada’s shock rate cut hurts global risk appetite

21 Jan 2015

First Zurich, now Ottawa. Days after the Swiss central bank abruptly reversed a cornerstone policy, the Bank of Canada upended market expectations with a 25 bps easing. The Canadian dollar plunged. Unpredictable policy generates volatility and fear, hurting economic prospects.

Rob Cox: Davos badly needs a Henry Ford moment

21 Jan 2015

The widening gap between the Capital Class and the rest threatens global prosperity. Ford was a pioneer at voluntarily paying employees more, as U.S. insurer Aetna did last week. The great American auto entrepreneur would also have applauded Obama’s plan to tax workers less.

One share, two votes is a step backwards for Italy

21 Jan 2015

The country’s long-term shareholders could soon enjoy extra voting rights. This may tempt family firms to float and enable more privatisations. Yet Italy’s markets need more dynamism, not less. The days when a few corporate powerbrokers called the shots were meant to be over.

Obama’s tax plans are good, bad and ugly

20 Jan 2015

It’s hard to argue against the U.S. president’s proposal to close a big capital gains loophole. And measures to encourage work and savings make sense. But more college subsidies heighten an already big financial risk and a tax on big bank borrowing brings the wrong incentives.

Fixing Brazil’s economy is a marathon not a sprint

20 Jan 2015

President Dilma Rousseff’s new economic team has started fast off the blocks, pledging more belt-tightening and less government meddling to reassure investors. There’s a long haul ahead, however. The risk of Rousseff losing steam as the going gets tough can’t be discounted.

Euro zone QE-by-country not as bad as it sounds

20 Jan 2015

The ECB’s bond-buying programme may leave national central banks on the hook for potential defaults. The goal is to soothe German fears on subsidising weaker countries. Sceptics see a fissure in the monetary union. The fears are exaggerated, but perceptions matter.