Becalmed UK in danger of double dip 1 Nov 2011 British GDP grew by 0.5 percent in the third quarter – and over the past year. A recession looms as the euro zone crisis brews up another storm. The government and the Bank of England hope credit easing will stave off the worst – but a fiscal U-turn may be hard to avoid.
Euro crisis back to square one – or worse 1 Nov 2011 Greece’s planned referendum on last week’s bailout, announced as polls show its citizens reject it, has thrown the whole pack of cards up into the air. Bank runs, disorderly default, an exit from the euro and vicious contagion elsewhere are no longer wild scenarios.
Capitalism takes three big hits in one day 1 Nov 2011 Blame past exuberance for the grim headlines. It created the Greek mess. Dangerous optimism also made investment banks too large. And now private equity hubris has led to the failed ISS sale. These monuments of financial folly are falling apart. The debris is hazardous.
New Delhi’s fiscal profligacy starts to bite 1 Nov 2011 India is set to bust its fiscal deficit/GDP target. Half way through the year, it has used two-thirds of the sums set aside. With inflation close to 10 percent and growth sluggish, there is an urgent need for the government to get a grip of public spending.
Spain isn’t as uncompetitive as you think 31 Oct 2011 The country’s unemployment rate scales new heights even as Spain’s exporters seem surprisingly resilient. The snag is that there aren’t enough of them to get the country growing again.
Greek privatisation could produce double bonus 31 Oct 2011 Flogging the country’s state-owned businesses and land is mainly viewed as a way of reducing its crippling debt. But if properly handled, the process could also be a spur for broader economic reform. Dag Detter, who led the restructuring of Sweden’s public assets, explains.
Greek creditor losses could top 50 percent 31 Oct 2011 Banks have provisionally agreed to haircut their bond holdings by half, but the coupon on the new bonds they will get is still being negotiated. If the euro zone plays hardball, losses could reach 60 percent, Breakingviews latest calculator shows.
Japan acts alone in global financial mess 31 Oct 2011 Monday’s unilateral effort to keep the yen from rising will probably work as well as the last one – not very much. Tokyo can’t easily resist the pressure from foreigners fleeing troubled currencies. The G20 could move the world towards financial balance, but won’t try hard soon.
Roman politics could gum Europe up 31 Oct 2011 The euro’s future hangs on Italy – and Italy’s future hangs on its politics. The best way forward would be a grand coalition replacing Berlusconi’s discredited government. But after the PM’s latest Houdini act, that doesn’t seem likely and other scenarios aren’t as attractive.
Egyptian economy hangs on smooth, timely elections 31 Oct 2011 Aid pledged by Gulf countries will help bring Egypt’s finances back from the brink. But a rapid transition to democracy is needed to allow a gradual fall in the pound and to lure risk-averse foreign investors back to help Egypt finance its ballooning fiscal deficit.
The euro zone has a deal. Now for the hard part 27 Oct 2011 Leaders of the monetary union have agreed to force large losses on Greece’s creditor banks; to recapitalise banks; and to increase the capacity of the EFSF bailout fund. But before celebrating, crucial details need to be filled in. And implementation must be airtight.
Greek haircut only resets crisis clock to 2009 27 Oct 2011 Banks have agreed to a 50 pct haircut on Greek government bonds, clearing the way for further euro zone support. But Greece’s debt burden remains higher than when the crisis began, and the country faces years of challenging austerity. Another restructuring may still be necessary.
Ethical economy: Debt is a moral matter 26 Oct 2011 Aristotle said interest-bearing loans are unfair to borrowers. Many Greeks these days feel the same way. But some Germans – and Chinese – worry that it’s the lenders who get an unjust deal. In a debt crisis, rights and wrongs can make all the difference.
Orderly euro exit virtually impossible 26 Oct 2011 A UK businessman has promised a 250,000 pound prize for the best explanation for how a country could quit the single currency in an orderly fashion. Hugo Dixon gives his best shot, but still concludes there would be mayhem.
Banks have two aces in Greek default poker 25 Oct 2011 The euro zone wants private creditors to take a 60 percent haircut on Greek debt. But this negotiating position is undermined by an irrational fear of triggering CDS, and reluctance to take a loss on governments’ Greek exposure. Banks may use this to go for a sweeter deal.
Euro-recession, not rebellion, is what boxes UK in 25 Oct 2011 An EU protest vote by members of his own party has knocked the UK prime minister. But David Cameron has a bigger and more immediate European problem. An already-weak UK economy is likely to be dragged into recession by the euro zone. Fiscal policy revisions may be necessary.
India’s inflation fight lacks credibility 25 Oct 2011 The central bank’s latest rate hike won’t tame stubborn inflation of over 9 percent. The urgent task now is to reduce expectations of more price increases with a more explicit inflation target. It might mean GDP slows a bit, but that’s an acceptable price to pay.
Economic stress adds to Turkey’s quake woes 24 Oct 2011 The human cost of the Ercis disaster comes as Turkey fights to keep its once-booming economy on track. Ankara is playing a high-risk game by intervening in markets. It needs higher interest rates to shore up the lira, but the cost may be recession.
It’s Italy, stupid 24 Oct 2011 The big issue dwarfing all others now in the euro crisis is how to save Italy. Financial engineering of the sort discussed at the weekend summit will, at best, buy time. Ultimately, Rome needs to save itself. With political will, it can.
Internal devaluation: it’s worth a try 24 Oct 2011 Big wage cuts should be almost as good as currency devaluation at reducing large trade deficits – in theory. In Europe, no one knows if practice will follow conjecture. But Latvia is trying and Greece is likely to follow. It’s not nice, but it might be a least bad alternative.