Hugo Dixon: Euro zone should beware the "F" word 2 Apr 2012 Political leaders and the ECB have bought the time needed to resolve the euro crisis. But there are signs of fatigue. A renewed sense of danger may be needed to spur policymakers to address the region’s underlying problems. It would be better if they got ahead of the curve.
Euro zone numbers game could leave IMF cold 30 Mar 2012 Finance chiefs are fiddling figures in an attempt to boost the nominal firepower of Europe’s bailout fund. The compromise is necessary to persuade the IMF to pledge more money as well. But the developing countries that have growing clout within the fund are unlikely to be fooled.
Europe can learn to live with German inconsistency 29 Mar 2012 Berlin seems ready to expand Europe’s bailout fund, while the Bundesbank keeps criticising the ECB’s liquidity splurge. Germany is seeking to balance economic pragmatism and monetary intransigence. Yet this need not obstruct the debate about reviving economic growth.
Spain can’t avoid austerity conundrum 29 Mar 2012 A general strike won’t turn back the clock on labour market reform and the coming budget cuts look inevitable. Too much austerity could be self-defeating and even unrealistic, but Prime Minister Rajoy cannot afford to waver after his earlier deficit faux pax.
Europe needs to ease on firewall obsession 26 Mar 2012 Euro zone members may agree this week on beefing up their rescue fund. But throwing money at the crisis won’t solve it. A bailout of Italy and Spain would be tricky, however big a firewall. And Italy’s crisis last year shows that market forces may be more efficient than bailouts.
Hugo Dixon: After the Robin Hood tax 26 Mar 2012 The European Union’s plan for a tax on financial transactions is dying. This is a golden opportunity to devise better taxes for banks. A levy on hot money and a Value Added Tax for finance would be a good start. So would removing the tax distortion in favour of debt.
ECB short of firepower as Europe gets worse again 22 Mar 2012 Data suggest continued recession in the euro zone, with weakness even in its core economies. Spanish yields are up again. But it’s harder now for the ECB to respond. Its expanded balance sheet can’t easily spray more liquidity. And German inflation worries make a rate cut tricky.
Shame if Spain loses second ECB seat 16 Mar 2012 Wrangling over big euro jobs may leave Madrid with only one ECB seat and Luxembourg, whose population is 1 pct of Spain’s, with two. That would be a mistake. Having Spain fully on board is an asset. And marginalising it would make it harder to deal with if it became a liability.
Euro left is powerless against austerity zealots 15 Mar 2012 Opposition to the euro zone fiscal compact is mounting among centre-left parties. This could derail ratification by some member states. But rules to enforce strict fiscal discipline are already part of European law, and Germany and the ECB are still calling the shots.
Ethical economy: What’s really wrong with Europe? 14 Mar 2012 It’s not the economy. On that score, despite recent stress, Europe is working at least as well as the United States. But the euro crisis showed a deeply defective political system. Europe needs more discipline, greater solidarity and a higher purpose. It should be able to manage all three.
Haggling on 2012 Spanish deficit misses the point 13 Mar 2012 The EU has agreed to relax the country’s deficit target for 2012 as long as Spain maintains its goal of shrinking it to 3 pct of GDP next year. The compromise allows both sides to save face for now. The problem is that as recession hits, next year’s target remains challenging.
Euro zone first default gives few reasons to cheer 9 Mar 2012 Most Greek creditors have agreed to take a loss on their 206 bln euro holdings. The euro zone’s first restructuring should not be chaotic. But it has done away with the pretence that a sovereign’s signature is always golden. And Greece still struggles with a heavy debt load.
Spain bails out its regions, IMF-style 9 Mar 2012 The state will guarantee a 35 billion euro syndicated loan to local and regional government to pay back suppliers. The move will be a godsend to small businesses. But – like the bailouts of Greece – the risk is it will take the pressure off the regions to shape up.
Now prepare for the next crisis 9 Mar 2012 The euro zone has overcome enough of its fundamental weaknesses to defuse the Greek debt bomb. But the financial system is as distorted as ever. A purely financial crisis is possible in the next two years. A financially enhanced political crisis may be even harder to avoid.
Greek debt threat won’t trigger Armageddon 7 Mar 2012 Athens is threatening not to pay holdouts in its debt swap, dispelling any pretence of a voluntary restructuring. The sabre-rattling is spooking markets, but an outbreak of minor chaos should help bring stragglers on board. A disorderly default still looks remote.
Euro cost studies are misleading and meaningless 6 Mar 2012 The IIF puts the price of a Greek default at 1 trln euros. Lombard Street Research reckons the cost of keeping the euro zone intact is even greater. But predicting alternate economic outcomes is subjective. Beyond advancing specific agendas, the exercise has little merit.
ECB cash palliates crisis but drives up oil price 5 Mar 2012 The euro zone’s crisis has been eased by a trillion euros of financing from the European Central Bank. But this easy money comes with major risks. It has helped drive up the oil price, indirectly funds deficits and, as Germany fears, could bring inflation and a debased currency.
Hugo Dixon: LTRO was a necessary evil 5 Mar 2012 The ECB’s decision to pump 1 trln euros into European banks could reduce the pressure on governments to reform, while allowing undeserving banks to make bumper profits. But the bailout prevented an even worse outcome. The priority now is to limit the bad side-effects.
Deficit target fetishism could deepen EU recession 2 Mar 2012 Euro zone leaders are wasting an opportunity to be more flexible about deficit targets. Their blind discipline-obsession is self defeating. In the short term, excessive austerity will worsen the recession. In the long term, it will compromise efforts to ensure fiscal prudence.
Euro zone crisis over – for now 1 Mar 2012 Italian and Spanish 10-year bond yields have fallen below 5 percent. Cheap money and new governments’ ability to reform have won over markets. But the ECB will be reluctant to help more, Greece and Portugal are still problems – and the whole periphery is mired in recession.