Fiscal Policy

FX benchmark reform plan can only go so far

30 Sep 2014

A Financial Stability Board report on reforming FX benchmarks strikes a decent balance between the needs of users and those of banks. But in the end, it’s up to the latter to clamp down on illicit activity – and up to governments to make sure there is an interest in doing so.

Welfare cuts betray UK’s lingering weakness

30 Sep 2014

George Osborne says the economy is stellar yet benefit cuts are needed. The picture is worse than the finance minister admits. As Britain’s deficit stays high, debt soars and weak wages persist, the government faces more harsh choices. The UK is far from paying its way.  

Rouble slide puts central bank in a bind

29 Sep 2014

The Russian currency’s fall will make runaway inflation worse and force monetary authorities to act. It will help the central bank resist political calls to loosen policy to fight the sanctions-induced slump. But it could deal the economy another nasty blow.

Commodity bear market looks entrenched

29 Sep 2014

A rising dollar, the prospect of U.S. rate rises, and moderating Chinese growth are casting long shadows over the asset class. The threats to the bear case are strong supply-side responses, or successful economic stimulation by the ECB. Neither looks very likely.

Vindication is bitter for Royal Mail privatisation

29 Sep 2014

The froth is off. Forget the 87 pct pop: a year after its frenzied IPO, shares in the UK postal service hover 20 pct above its float price. That feels about right. The snag for the state and its bankers is that it will be fiendishly difficult to shift the unsold stake.

Power to borrow is vital for proper UK devolution

26 Sep 2014

Prime Minister David Cameron plans to devolve more tax and spending to Scotland after it voted to stay in the United Kingdom. For the process to be really meaningful, though, the Scots must be free to issue debt. That’s risky, but there are ways to limit the dangers.

UK torn between populism and fiscal reality

23 Sep 2014

The Scottish referendum has stirred discontent around the UK. With an election months away, the pressure is on politicians to make populist gestures. Yet the UK’s large fiscal deficit shows the need for serious reform. The risk now is of unaffordable promises.

Hugo Dixon: Now on to the Brexit referendum

22 Sep 2014

With the Scots voting to stay part of the UK, attention will turn to the next potential referendum: on whether Britain will remain in the EU. There are comparisons and contrasts between the two votes, as well as lessons to be learned.

Federal UK is easier to promise than to deliver

19 Sep 2014

After the Scottish rejection of independence, the UK prime minister pledged a speedy devolution of more powers. Giving regions greater control of taxes and spending sounds sensible. But the politics and practicalities of knotty issues like devolving borrowing powers will be daunting.

Edward Hadas: The economic lessons from Scotland

17 Sep 2014

However the independence referendum turns out, the arguments from both sides reveal some hard truths. Governments are at the centre of modern economies. But their freedom is limited, since no nation is an island. And the toughest challenge is managing the financial system. 

Separate Scotland could weather a currency storm

17 Sep 2014

If nothing went  according to the plans of independence campaigners after a Yes vote, Scotland might have to adopt its own money. The transition could be sudden and rough, accompanied by predictions of doom. But a sensible government would soon have a creditworthy currency.

France relaxed about fiscal targets. That’s fine

16 Sep 2014

PM Manuel Valls will ask parliament for a vote of confidence on his economic plan. Lower growth means that France will yet again break its deficit promise. But the government is right in resisting more spending cuts or tax hikes. Anything else would worsen the country’s slump.

No-debt mania continues to dictate German policies

16 Sep 2014

Angela Merkel’s rhetoric on higher investment is shifting, but actual policy changes will remain symbolic. Perpetuating a balanced budget continues to be her government’s priority. That is misguided and harmful, but German voters seem to like that fundamentalist approach. 

Hugo Dixon: Capital markets union needs deregulation

15 Sep 2014

To deliver the EU’s goal of a single capital market will require new regulation in some cases. But in others, regulation put in place in the wake of the financial crisis will need to be revised, because it is getting in the way.

Japan index: Abe’s tax hikes an ever-tougher sell

9 Sep 2014

The Breakingviews Abenomics Index stalled in July. Inflation expectations waned, and wages were flat. If the weakness persists, Prime Minister Shinzo Abe will find it hard to raise the sales tax rate a second time next year, and that could delay much-needed fiscal consolidation.

Negative rates are just an incremental positive

5 Sep 2014

Lenders to Germany are now promised a negative nominal return for three years, and France can borrow below zero for two. The negative rates break a historic taboo, but they may not work as the ECB hopes. High debts, not high rates, are the biggest drag on the euro zone.

Draghi plays final hand in euro poker game

4 Sep 2014

The ECB is going all-in. It has cut rates to near-zero and will buy assets on a large scale – on top of the ultra-cheap liquidity it had already announced. The moves could help the euro zone economy, but the ECB has now used all its powder. The rest is up to governments. 

Markets start to wake up to Scots secession risk

2 Sep 2014

Sterling currency options have jumped after poll gains for the pro-independence lobby. If Scots vote Yes, wholly unresolved issues surrounding currency and the division of spoils will burst out into the open. They won’t be quickly resolved. Investors should brace themselves.  

Draghi leaves Germany in austerity team of one

26 Aug 2014

The ECB president is now calling for looser fiscal policies, with hints that he will follow up with monetary relief. The change of heart is a rational response to euro zone stagnation and persistent low inflation. All that’s needed now is to bring Angela Merkel along.

ECB deserves to lose market’s inflation confidence

22 Aug 2014

Euro zone inflation is moribund. Investors are increasingly doubting Mario Draghi’s ability to boost it, according to normally quiescent market signals. That’s quite right, given how ineffectively monetary policymakers are addressing the problem.