Fiscal Policy

UK rates may not rise till 2016 – or later

14 Aug 2014

This year or early next for a UK rate rise? That has been the market’s question. The data demands much more caution. The Bank of England expects inflation to be on target until 2017, and its growth forecasts look optimistic as Europe struggles. Expect flat rates for a long time.

Flight to safety is liable to persist

11 Aug 2014

Geopolitics has brought volatility back to global markets. The most serious risk is the impact of Russian sanctions and counter-sanctions on European growth. Markets’ recent soft patch may be more than a seasonal lull.

South Africa’s bank bail-in better than Portugal’s

11 Aug 2014

A public bailout for reckless ABIL is sub-optimal. But unlike Portugal’s BES rescue, senior creditors will take some losses. And while taxpayers remain exposed to the new bad bank, the political desire to maintain lending capacity to poorer citizens is understandable. 

Pure politics can’t revive Italy’s coma economy

11 Aug 2014

Prime Minister Matteo Renzi offers promises and constitutional change, but has delayed tough reforms. Europe’s fourth-biggest economy is stuck in perma-recession. To awake from its deep sleep, Italy needs far more radical changes than are on offer.

U.S. social security suffers from low-rate longevity

29 Jul 2014

The retirement and disability funds will run out by 2033, nine years earlier than projected 10 years ago. After that, benefits will have to go down – or taxes up by nearly 3 pct of income on average over 75 years. Low interest rates worsen the problem and make fixes more urgent.

Japan’s bond-hugging banks are pinning Abe down

22 Jul 2014

Lenders’ $3 trln holdings of public debt are not falling fast enough. That could be problematic for the prime minister. Once monetary stimulus dries up, banks may rattle the financial system by turning panic sellers. Bank of Japan minutes show Shinzo Abe’s team knows the risks.

Clever Bundesbank recruits labour as a policy tool

21 Jul 2014

Even in thriving Germany, no one has figured out how to push up wages enough to reverse disinflationary pressure. The central bank is trying something new: encouraging unions to fight harder for pay rises. It may have enough authority to incite some healthy inflation.

BoE doves look an endangered species

16 Jul 2014

UK unemployment is falling and inflation has rebounded towards the Bank of England’s 2 percent target. Any policymakers who are opposed to an early rate rise can point to the persistent and puzzling weakness of wage growth. But the cards are increasingly stacked against them. 

Don’t believe predictions of low interest rates

9 Jul 2014

Central bankers and economists say the official cost of money in the post-zero rate era will remain cheap by historic standards. Their prognostications rely on a theory which is unsound, unsupported by evidence and impossible to apply. Future rates are as likely to be high as low.

Hugo Dixon: Matteo Renzi is on a roll

7 Jul 2014

The Italian prime minister is a brilliant politician. His youthful dynamism has bought him time with his people, the markets and the EU to carry out the immense job of reforming Italy. But he has yet to show he can execute. He now needs to, because even his time will run out.

ECB’s targeted loans look deliberately scattergun

3 Jul 2014

The European Central Bank has explained how banks must lend to get super-cheap funding. The terms are loose, and there’s little to ensure the cash will reach credit-starved SMEs. But that merely makes the loans more attractive - and thus a more powerful weapon against deflation.

Europe challenged by inadequate private investment

3 Jul 2014

The euro zone economy might benefit if governments invested more, but a new study shows that weak spending by companies has been a bigger drag on growth. The problem is much easier to diagnose than to cure. Special lending programmes and tax breaks might help.

Renzi picks wrong energy policy for right reasons

30 Jun 2014

The Italian prime minister has a Machiavellian streak. Matteo Renzi’s move to cut renewable energy incentives could spook investors, but it may help his reform agenda. He now needs to prove that the end justifies the means.

UK’s hawkish shift is dangerous

30 Jun 2014

There are good reasons for the Bank of England to raise rates. But an early move this year could be costly. Sterling would rise further. Exports, already struggling, would suffer. Rebalancing dreams would die. The BoE must hope the housing market cools, and the Fed quickens. 

EU can move forward after unneeded Juncker drama

27 Jun 2014

The UK-created conflict on the appointment of the former Luxembourg PM as European Council president is coming to an end. Europe’s leaders now have to sort out the somewhat confusing British demands for change. Once that is done, there will be room for compromise.

Spain’s tax reform misses most goals

27 Jun 2014

The reform of Spain’s tax system was supposed to make it more efficient, help boost growth and make companies more competitive. Instead, its effect on growth looks minimal and it will have an adverse impact on public finances. 

Barclays’ hit reflects investment bank fears

26 Jun 2014

Shares in the UK bank tanked 9 pct after accusations of fraud in its “dark pool.” That implies a surprisingly big $6 bln hit. Fine inflation is rampant, and Barclays could suffer reputational damage. It’s a reminder: small investment banking businesses can carry outsized risks.

Carney takes narrow view of financial stability

26 Jun 2014

The Bank of England governor had a chance to address galloping UK house prices via macroprudential tools, curbs to UK mortgage guarantee schemes, and dire warnings. All he offered was underwhelming lending rules. That is no way to protect banks in the long run. 

Skeptics have best of U.S. Ex-Im Bank fuzzy math

26 Jun 2014

Depending who’s talking, the export lender costs taxpayers $2 bln or earns $2 bln, is essential or aids just 2 pct of exports, and helps mainly Boeing or predominantly small businesses. Ex-Im is a political football more than a linchpin of trade, and its critics have the edge.

Russian rally has deceptive momentum

24 Jun 2014

Moscow stocks have recouped this year’s losses as Vladimir Putin sends signals of a more conciliatory policy toward Ukraine. The annexation of Crimea is fading from investors’ memory. But Russia still has its problems, which limit its scope to outshine other emerging markets.