ECB faces high-stakes dilemma on SME loan drought 12 Mar 2013 The European Central Bank can’t ignore the dearth of credit for small Spanish and Italian companies: it’s in its own data. Taking credit risk via buying banks’ SME loans would be way out of Mario Draghi’s comfort zone. But if things worsen the ECB may have to take the plunge.
Egypt needs urgent help to stop it sinking 12 Mar 2013 The Muslim Brotherhood has failed to protect the fragile economy, let alone boost it. The country is gripped by shortages, aid options are narrowing and no date is set for parliamentary elections. The longer Cairo delays an IMF deal, the greater the social and financial risks.
Intrade sheds light on gray markets going dark 11 Mar 2013 The site, which took bets on everything from elections to oil, closed abruptly and mysteriously. Intrade’s predictive record was good, but didn’t foresee the rising controversy over under-regulated speculation. It’s a cautionary tale for the likes of SecondMarket and StarStreet.
ECB must act as Draghi’s confidence trick wanes 11 Mar 2013 Europe got a boost when ECB President Mario Draghi committed to preserve the euro last year. That is now waning. The euro zone faces contraction this year, and weak inflation risks becoming deflation. The ECB’s failure to cut its 0.75 pct benchmark rate is hard to fathom.
Aging drives U.S. debt more than medical costs 11 Mar 2013 Much Washington talk focuses on runaway healthcare spending. But that has been slowing. Over the long term, say 25 years, the number of people needing treatment is the federal government’s biggest problem. Not far behind is the cost of interest as borrowing balloons.
China starts 2013 the way it can’t hope to go on 11 Mar 2013 Economic growth so far this year has come mainly from exports and real estate. The latter is powered by a surge in financing, which grew at an annualized 37 pct. With consumption weak, the current expansion can continue only by pumping ever more credit, and risk, into the system.
Hugo Dixon: Markets too sanguine about Italy 11 Mar 2013 The country’s politics and the economics are both messed up - and there are no easy solutions. While Rome does have the ECB as a backstop, it may have to get to the brink before using it.
U.S. economy warming up – for those participating 8 Mar 2013 Job gains in February were solid and the unemployment rate fell to 7.7 pct, suggesting a degree of austerity isn’t derailing growth. But labor force participation sank to match last August’s three-decade low. A long trough has left many Americans disconnected from the upturn.
Review: The massacre of Britain at Bretton Woods 8 Mar 2013 Benn Steil’s new book explains how the American Harry Dexter White emerged triumphant - and the UK’s John Maynard Keynes defeated - from the conference which created a new financial system after World War Two. The Bretton Woods Agreement sealed Britain’s post-war decline.
Draghi’s dance on negative rates isn’t over 8 Mar 2013 The ECB chief played down hopes of cutting rates below zero, stressing “serious” risks. It could punish cash-rich banks and may not lead to more lending in the context of the Italian crisis. But if the euro shoots up, talk of negative rates may return.
UK would gain from homeowner tax switch 8 Mar 2013 Homeowners are a tempting target for cash-strapped UK tax collectors. One option is to levy “mansion taxes”; another is to milk existing stamp duties. It would be better to forget the first, scrap the second and close the capital gains tax loophole on residential property.
China’s currency inflows could be illusory 8 Mar 2013 The country’s banks bought a record amount of foreign currency in January. It suggests investors and exporters are regaining faith in the yuan’s rise. But companies may just be clearing a backlog of cheaply borrowed dollars. Those flows could reverse if China’s currency weakens.
Discrimination against women takes many forms 8 Mar 2013 It’s easy to measure a pay gap, harder to assess how much of it springs from mistreatment. Lower pay may come from working fewer hours and at lower-paid professions. That may reflect traditional gender differences - as well as overt or subtle social distortions.
German pay hikes good news for Europe if moderate 7 Mar 2013 Wages are rising, within reason. Unions are not in a bellicose mood, and stick to the pragmatic approach that has served the country’s labour market well. This is a welcome development, not only for German workers but also for the rest of Europe.
Goldman-Morgan rivalry gets personal in Asia 7 Mar 2013 Morgan Stanley’s regional investment banking chief, Kate Richdale, defected to its main Wall Street adversary. It’s tempting to read her move as evidence of a decisive shift, especially following other high-level exits. However, the grudge match has proved remarkably enduring.
UK policy rhetoric flies in the face of reality 7 Mar 2013 The British government says it believes in fiscal conservatism but runs one of the largest deficits in Europe. It also says it wants a more aggressive central bank, but the BoE is already a global leader in money printing. The unrealistic rhetoric muddies the policy debate.
Ireland, Portugal prey to European electoral cycle 7 Mar 2013 Europe’s poster children for austerity will get symbolic relief from the extension of their bailout loans. This is a timid response to the Italian shock. Euro members want to show that fiscal discipline pays, but with elections looming, Germany can’t agree on a bolder package.
Mervyn King’s RBS bad bank plan is just bad 6 Mar 2013 The outgoing Bank of England governor’s call for RBS to be split could enable its better part to be sold more quickly. But it could also require a big injection of public cash without delay. Since the bank’s restructuring is almost complete, this is hard to justify.
Ethical economy: Morality and monetary policy 6 Mar 2013 Central bankers think of themselves as financial technocrats. But ethical analysis could have helped them avoid the financial crash and today’s abnormal policies. Freedom to lend and borrow is not an absolute good, and the greed of bankers and borrowers is a dangerous evil.
Global finance isn’t dead, only shrinking 6 Mar 2013 Bankers worry the world’s financial system is fragmenting, with dire consequences for trade and growth. But after an unsustainable boom, some shrinkage is inevitable, and desirable. Besides, excluding the euro zone, cross-border capital flows are still reasonably healthy.