Fiscal Policy

ECB’s mission possible: surprise markets

20 Jan 2015

Investors are so geared up for 600 billion euros of quantitative easing that its arrival could underwhelm. Yet Mario Draghi has a reputation for bending markets to his wishes. High uncertainty about how bond-buying will work means the ECB boss still has scope to over-deliver. 

Obama’s giveaways come with free lunch problem

20 Jan 2015

The U.S. president wants programs from government-funded community college to subsidized broadband. Together, they would cost at least $125 billion over a decade. That would mean more tax or borrowing. With Republicans against both, even Obama’s better ideas look impractical.

Italy’s Renzi is caught in race against the crisis

14 Jan 2015

Italian Prime Minister Matteo Renzi has achieved more in 11 months than critics admit. But his weak parliamentary position has held him back. Upcoming presidential elections and another year of low growth could make life still harder for him.

Germany’s reform zeal peaked a decade ago

5 Jan 2015

Berlin often lectures its euro zone peers on structural reform. Germany indeed adopted radical labour market reforms in 2005. They were beneficial, but amounted to political suicide for Angela Merkel’s predecessor. Since then the Chancellor hasn’t shown much appetite for change.

Bad ideas catching up with Latin America in 2015

29 Dec 2014

For four years, the region has mostly lagged world economic growth. The IMF predicts another year of the same. While Pacific-oriented countries will shine, Brazil, Argentina and Venezuela will suffer. With a couple of exceptions, misguided policies are coming home to roost.

Putin takes up residence in alternate reality

18 Dec 2014

The Russian president insists that prosperity is around the corner if his countrymen can only endure another two bad years. But as sanctions and weak oil prices push Russia towards recession, no serious reform is in sight. Putin’s optimism should be a cause for serious pessimism.

Swiss give positive lesson in negative rate policy

18 Dec 2014

A safe-haven currency can invite economic trouble. The Swiss central bank is up to the challenge. It started with market intervention and has now introduced a negative overnight rate. The Swiss realise that money is more of a policy tool than a store of value.

Poor growth prospects show Germany’s weaknesses

15 Dec 2014

Europe’s supposed economic powerhouse can only grow by 1 percent a year in the long-run, according to revised Bundesbank forecasts. Misguided policies drag down Germany’s economic potential as dividends of past reforms are petering out. That’s bad news for the euro zone. 

Hugo Dixon: Greece still several steps from chaos

15 Dec 2014

Athens has entered a period of political instability, which could lead to an election won by Syriza. This radical left group’s policies could prompt Greece’s exit from the euro if fully implemented. But this is unlikely, as Syriza will struggle to execute its plan.

French reform bill more talk than walk

10 Dec 2014

Economy Minister Emmanuel Macron wants to show Europe that France is finally getting serious about reform. But his limited plan to deregulate some services faces fierce opposition from within the ruling socialist camp. What Macron is demonstrating is how tough his job is.

Hugo Dixon: Can we have a good life without growth?

8 Dec 2014

The West, especially Western Europe, may have entered an era of low economic growth. This could cause misery, especially if no solutions are found to joblessness, debt and poverty. That said, a changed mindset about what matters may help with finding the answers. 

BoE independence faces stiff test

5 Dec 2014

Lower borrowing costs helped George Osborne plug a hole in UK tax receipts. Add the chancellor’s home-buying scheme, and the government’s interest in monetary easing is clear. It is critical for Osborne-appointed BoE Governor Mark Carney to be seen to be making his own decisions.

UK’s economic torpor looks structural

4 Dec 2014

The slow shrinkage of the UK fiscal deficit is one sign of a weak recovery. There are others – a sharp increase in the current account deficit and GDP per person below the 2007 level. The country’s problems are too deeply entrenched to be solved by government budget tinkering.

UK chancellor runs out of stimulus

3 Dec 2014

George Osborne’s budget is no pre-election pleaser, despite populist moves on property, bank and corporate tax. Deficit reduction is further behind schedule in part due to prior tax cuts. The fiscal outlook remains poor. Necessity forced low-cost gestures and further austerity. 

“London levy” targets distortive foreign inflows

3 Dec 2014

The UK has a new 12 pct tax on property deals over $2.4 mln. That, and hikes in the cost of being “non-domicile,” will make the global mega-rich think twice about alighting in London. Property taxes elsewhere will fall. Policy is for once being set for the nation not the centre. 

UK’s latest small firm loan ploy flogs dead horse

3 Dec 2014

The Bank of England is extending its Funding for Lending Scheme helping banks lend to small businesses. By giving the fragile banking sector more leeway, the FLS has its uses. But it will probably still flunk its stated aim: increasing small firms’ use of debt.     

ECB could easily manage QE sovereign risk

2 Dec 2014

Critics say sovereign bond-buying could expose the ECB to risky countries and possibly trigger fiscal transfers. The argument is good in theory. Yet based on the ECB’s target, the exposure could be lower than in 2013 – when the central bank held more debt from the periphery.

Putin’s Russia can’t easily escape rouble debacle

1 Dec 2014

The Russian currency is sinking along with the oil price. A central bank interest rate hike would hurt the struggling economy. Reforms reducing the country’s dependence on oil might increase confidence, but Western sanctions are squeezing the government and the financial system.

Japan downgrade out of step with new QE world

1 Dec 2014

By normal debt logic, Moody’s is right to lower the rating of a sovereign struggling to cut its huge deficit. But yields keep falling as the central bank effectively monetises. The lesson: money-printing governments can always dodge default – and they may duck inflation too. 

Euro zone lassitude likely to endure

28 Nov 2014

The sharp oil price decline effectively crushes any hope of an inflation revival, even if the ECB eases, yet again. Fiscal caution, sluggish banks and mild reforms will restrain job creation in key economies. The prognosis is very slow progress with a high chance of crisis.