Federal UK is easier to promise than to deliver 19 Sep 2014 After the Scottish rejection of independence, the UK prime minister pledged a speedy devolution of more powers. Giving regions greater control of taxes and spending sounds sensible. But the politics and practicalities of knotty issues like devolving borrowing powers will be daunting.
Edward Hadas: The economic lessons from Scotland 17 Sep 2014 However the independence referendum turns out, the arguments from both sides reveal some hard truths. Governments are at the centre of modern economies. But their freedom is limited, since no nation is an island. And the toughest challenge is managing the financial system.
Separate Scotland could weather a currency storm 17 Sep 2014 If nothing went according to the plans of independence campaigners after a Yes vote, Scotland might have to adopt its own money. The transition could be sudden and rough, accompanied by predictions of doom. But a sensible government would soon have a creditworthy currency.
France relaxed about fiscal targets. That’s fine 16 Sep 2014 PM Manuel Valls will ask parliament for a vote of confidence on his economic plan. Lower growth means that France will yet again break its deficit promise. But the government is right in resisting more spending cuts or tax hikes. Anything else would worsen the country’s slump.
No-debt mania continues to dictate German policies 16 Sep 2014 Angela Merkel’s rhetoric on higher investment is shifting, but actual policy changes will remain symbolic. Perpetuating a balanced budget continues to be her government’s priority. That is misguided and harmful, but German voters seem to like that fundamentalist approach.
Hugo Dixon: Capital markets union needs deregulation 15 Sep 2014 To deliver the EU’s goal of a single capital market will require new regulation in some cases. But in others, regulation put in place in the wake of the financial crisis will need to be revised, because it is getting in the way.
Japan index: Abe’s tax hikes an ever-tougher sell 9 Sep 2014 The Breakingviews Abenomics Index stalled in July. Inflation expectations waned, and wages were flat. If the weakness persists, Prime Minister Shinzo Abe will find it hard to raise the sales tax rate a second time next year, and that could delay much-needed fiscal consolidation.
Negative rates are just an incremental positive 5 Sep 2014 Lenders to Germany are now promised a negative nominal return for three years, and France can borrow below zero for two. The negative rates break a historic taboo, but they may not work as the ECB hopes. High debts, not high rates, are the biggest drag on the euro zone.
Draghi plays final hand in euro poker game 4 Sep 2014 The ECB is going all-in. It has cut rates to near-zero and will buy assets on a large scale – on top of the ultra-cheap liquidity it had already announced. The moves could help the euro zone economy, but the ECB has now used all its powder. The rest is up to governments.
Markets start to wake up to Scots secession risk 2 Sep 2014 Sterling currency options have jumped after poll gains for the pro-independence lobby. If Scots vote Yes, wholly unresolved issues surrounding currency and the division of spoils will burst out into the open. They won’t be quickly resolved. Investors should brace themselves.
Draghi leaves Germany in austerity team of one 26 Aug 2014 The ECB president is now calling for looser fiscal policies, with hints that he will follow up with monetary relief. The change of heart is a rational response to euro zone stagnation and persistent low inflation. All that’s needed now is to bring Angela Merkel along.
ECB deserves to lose market’s inflation confidence 22 Aug 2014 Euro zone inflation is moribund. Investors are increasingly doubting Mario Draghi’s ability to boost it, according to normally quiescent market signals. That’s quite right, given how ineffectively monetary policymakers are addressing the problem.
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.