EU perched between chaos and catharsis 7 Nov 2011 The political dramas in Athens and Rome are reaching crisis point. One path leads to destruction; the other rebirth. Though there are signs of hope, a few more missteps will lead down into the chasm.
Euro mess shows five types of dysfunctionality 4 Nov 2011 It takes many breakdowns to turn a problem into a crisis. The Europeans did it. Governments and investors have been fighting reality for years. Then the central bank and regulators underestimated the challenges. The Greeks also tried hard to discredit democratic rule.
Europe slowdown threatens a still-weak world 4 Nov 2011 However the euro zone’s systemic crisis plays out, the mix of austerity and uncertainty is already pushing Europe into recession. With the U.S. recovery still tentative and emerging markets looking a bit less robust, the threat of global slowdown looms.
Papandreou’s climbdown brings high-priced relief 3 Nov 2011 The Greek prime minister’s referendum call amplified an already severe crisis. But the gambit may have pushed the opposition to endorse the latest EU austerity demands. If so, it’s a big relief. It is less consoling to think how much brinkmanship was needed to gain so little.
Draghi-led ECB keeps Greece at arm’s length 3 Nov 2011 The bank’s new president jolted markets with a surprise cut in interest rates while his benign tone on the Greek crisis implied that he thinks that is an issue for governments to resolve. It’s hard to believe the ECB isn’t concerned. But the aloof approach may pay off.
Tobin tax is confused in principle and practice 3 Nov 2011 Taxing financial transactions looks a neat way to raise revenue from an unpopular sector. However, reducing liquidity won’t make markets more efficient. It also won’t make banks any safer, or stop asset bubbles. There are better ways for politicians to get their pound of flesh.
ECB on track to waste a good crisis 2 Nov 2011 Draghi will chair his first meeting of the central bank on the week of the euro zone’s great Greek scare and as all data point to a recession. The ECB should lower rates and make clear it’s prepared to be a lender of last resort to responsible governments – but probably won’t.
Fiscal union not the answer to euro problems 2 Nov 2011 Conventional wisdom has it that there are only two ways forward for the euro zone: fiscal union or breakup. But there’s a third, preferable option based on market discipline and tough love. In a crab-like manner, Europe may even be heading there.
Euro zone should prepare to let Greece go 1 Nov 2011 The EU has tried to help Greece deal with insolvency, but a country cannot be saved from itself. The right response to a possible referendum on austerity is to draw up plans for a Greek exit from monetary union. With the right firewalls, that might even make the euro better off.
Elections are least bad option for Greece 1 Nov 2011 A collapse of the Papandreou government followed by early elections, as now seems possible, would be fraught with problems. But it wouldn’t be quite as suicidal for Greece as a referendum. At least elections would be quicker and less likely to lead to a disorderly default.
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.
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.
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.
It’s still Italy, stupid 28 Oct 2011 Amidst the post-euro summit euphoria, it’s easy to ignore that the cracks have only been papered over in Rome. Not only do Berlusconi’s reform promises not go far enough; there’s a risk that his government will limp on until January, and then collapse having achieved nothing.
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.
Pitching in on Europe is in China’s best interest 27 Oct 2011 China has suggested a contribution to Europe’s bailout would come with strings. But as a beneficiary of global trade, the world’s number two economy has good reason to do whatever it takes to secure a stable euro zone. That would also spare China a rapid and painful adjustment.
EFSF II haircut SPIV BRIC plan can’t fail 27 Oct 2011 What might Europe’s comprehensive solution to its crisis look like? Breakingviews offers a tongue-in-cheek draft of a possible communique.
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.