EU debt’s credibility problem is worsening 9 May 2023 Borrowing costs of the bloc’s jointly issued bonds have risen above those of similarly rated sovereigns. The EU’s inability to deliver on promised joint revenues is exacerbating the impact of higher rates. That in turn reinforces investor fears that Brussels debt isn’t permanent.
Lagarde fine-tuning will aid sputtering euro zone 4 May 2023 The European Central Bank’s move to raise rates by just 25 basis points and speed up its exit from bond-buying signals a less aggressive approach. High inflation calls for more hikes, but Frankfurt’s decision to use a scalpel rather than a hammer will benefit Europe’s economy.
Buyout barons make bloody return in Europe 3 May 2023 Silver Lake and Bain are facing off to buy German company Software AG amid a revival in takeovers. Cheap stock prices mean deals can work despite debt constraints. But a limited pool of targets will make it hard to deploy $2 trln of dry powder, and stay disciplined.
ECB risks interest-rate blunder after messy data 2 May 2023 The European Central Bank is none the wiser following a raft of new numbers. Lenders may be reining in credit, but headline inflation is rising. Hardliners will still push for a 50 basis point hike on Thursday. The uncertain conditions call for an increase half that size.
Dollar bulls are praying for a mild downturn 26 Apr 2023 The greenback has lost 14% versus the euro since September, as investors bet on Europe’s recovery and China’s reopening. Inflation and interest rate trends still favour the single currency. The best hope for the buck is a minor economic slowdown to boost its safe haven status.
EU bank crisis plan makes best of bad landscape 18 Apr 2023 The European Union’s proposal to extend its bank-failure system to smaller lenders is an attempt to work around political constraints. Broader use of deposit guarantee schemes should limit bailouts and help troubled banks find buyers. But even sensible tweaks may not be possible.
Rome foot-dragging can help EU kick bad aid habits 18 Apr 2023 The Italian government is clashing with Brussels over 19 bln euros in pandemic loans. Missing milestones is bad policy for the biggest recipient of European aid. But the country’s pushback may have a silver lining if it prompts the bloc to be more flexible with money.
How US and allies can find common ground on China 17 Apr 2023 Emmanuel Macron is not the only US partner wary of being drawn into a Taiwan crisis. But America and its allies will be stronger if they can agree more about dealing with the People’s Republic. Part of the answer is to focus on de-risking rather than decoupling, says Hugo Dixon.
New EU debt rules have way to avoid past mistakes 4 Apr 2023 The European Union’s old stability pact was a poorly fitting straitjacket, yet recrafting it is politically fraught. The bloc now aims to replace strict diktats with medium-term goals. A successful framework can revive growth. But it will only work if countries follow it.
European pay anger is more costly than inflation 3 Apr 2023 Workers are striking and demanding salary hikes to make up for higher living costs. Governments and central banks are warning about the risks of a consumer price spiral, but after three years of real wage stagnation, further restraint will inflict political and economic pain.
ECB’s inflation battle has a 550 bln euro problem 31 Mar 2023 Christine Lagarde must keep tightening policy without triggering a bank crisis. She faces a test in June when a chunk of emergency loans comes due, increasing lenders’ funding costs. Targeted help, however, could ease financial risks and preserve the fight against high prices.
Europe throws ignition cars a thin lifeline 28 Mar 2023 A last-minute EU deal will exempt autos running on carbon-neutral propellants from a 2035 combustion engine ban. That may help sports carmakers like Ferrari. Such fuels are costly and energy-intensive. Brands betting big on electric rides, like VW, will struggle to change tack.
Bank health barometer could use own health warning 28 Mar 2023 Stock market investors interpreted last week’s jump in Deutsche Bank’s credit default swaps as a sign of distress. Yet thin trading in parts of the $12 trln market for speculating on creditworthiness can exaggerate moves. Add social media and it can feed self-fulfilling spirals.
Bank woes expose gaps in EU safety net 22 Mar 2023 As the US and Switzerland scramble to head off contagion, the European Union is watching from a shaky perch. While the euro zone probably could fend off a new banking crisis, it lacks some tools for doing so. Even a backstop for insuring retail deposits remains out of reach.
Lagarde is not for turning; the ECB might have to 16 Mar 2023 The head of the European Central Bank ignored a transatlantic financial rout and hiked rates by 50 basis points. For her, inflation, not banks’ health, is the real problem. She may soon have to worry about the damage her aggressive policy is inflicting on the euro zone economy.
EU and US green arms race misses bigger picture 16 Mar 2023 The European Union’s response to Joe Biden’s Inflation Reduction Act gives member states leeway to push back with their own green subsidies. Yet plans for production targets are misguided. To decarbonise while managing China risks, it’s better to seek common ground with the US.
European banks priced for profit dip, not crisis 14 Mar 2023 Lenders’ shares have plunged since Silicon Valley Bank failed, but only to January’s levels. Senior bankers like Lloyds CEO Charlie Nunn see no evidence of a US-style deposit rush in Britain. For investors, the fear is that interest rates don’t rise as far, crimping returns.
Banking turmoil could help euro doves cry victory 14 Mar 2023 With inflation running hot, the European Central Bank looked set to raise rates by 50 basis points on March 16. The collapse of two US banks flipped the script. As investors fear financial instability, the ECB might go easier and rely on previous hikes to curb consumer prices.
EU power rejig may only solve tomorrow’s problem 14 Mar 2023 Spooked by the 2022 gas crisis, the European Commission wants to boost long-term electricity contracts at fixed terms to shield consumers. That’s wiser than splitting the whole power market. Yet while it might aid green investment, it won’t curb prices in the short term.
Transatlantic valuation gap is mostly illusory 7 Mar 2023 Arm, CRH and Flutter may pursue US listings, while Shell mulled one. Since European stocks trade at a discount to the S&P 500, they might be hoping for a higher price. But the value chasm doesn’t hold for all sectors, and can be largely explained by differing growth rates.