European Central Bank

Iceland’s Loonie Idea: Will Ditching the Krona Solve its Currency Quagmire?

March 27, 2012 by

After having gone through a dramatic financial meltdown and two years of recession in 2009 and 2010, Iceland started to recover in 2011 and IMF estimates now indicate that economic growth should average between 2.5% and 3% over the short-medium term. Yet the country is in a post-crisis transition and a number of systemic and structural issues still need to be addressed by the authorities in order to secure economic stability for the future.

Trouble in Euro Zone Paradise?

February 24, 2012 by

The Europeans evidently thrive on instability and the ongoing threat of systemic risk. There is nothing else to explain the renewed hardline stance adopted by both Mario Draghi of the ECB and the German government on fiscal policy, just as the markets appeared to be calming down again.

Greece: A Default is a Better Outcome Than the Deal on Offer

February 13, 2012 by

Pick your poison. In the words of Greek Finance Minister Evangelos Venizelos, the choice facing Greece today in the wake of its deal with the so-called “Troika” (the ECB, IMF, and EU) is “to choose between difficult decisions and decisions even more difficult. We unfortunately have to choose between sacrifice and even greater sacrifices in incomparably more dearly.” Of course, Venizelos implied that failure to accept the latest offer by the Troika is the lesser of two sacrifices.

Austerity in, Euro out – Is this Greece’s future?

February 13, 2012 by

As Greek politicians approved a tough austerity package amid fierce protests, one question dominates: is an orderly exit from the Eurozone available for Greece? And just what might be the consequences? Recently Citibank put the probability of such a Greek withdrawal in the next 18 months at 50%. Greece is seeking to finalise a deal with bank creditors on Greece’s private sector borrowings which would cancel €100 billion euros ($A125 billion) of its sovereign debt of over €350 billion.

Breaking Up is Hard to Do

February 10, 2012 by

Nobody likes getting dumped on an anniversary. January marks the ten-year anniversary of the euro, whose introduction was supposed to herald an era of not just economic prosperity, but closer integration across the continent. But as the financial crisis grips Europe, enthusiasm for the euro is waning quickly among the public in many member states, and nations that had once pledged to adopt the currency are getting cold feet.

The Elephant in the Room is Spain, Not Italy

February 6, 2012 by

Another day and the markets remain fixated on whether Greece comes to a “voluntary” arrangement with its creditors. The key word is “voluntary” because the myth of “voluntary compliance has to be sustained so that those deadly credit default swaps avoid being triggered. But let’s face it: Greece is a pimple. If the rest of the euro zone could cut it lose with a minimum of systemic risk, Athens would have long gone the way of Troy.

Anschluss Economics - The Germans Launch A Blitzkrieg on the Greek Debt Negotiations

January 31, 2012 by

News stories continue to suggest that Greece once again appears on the verge of reaching a deal with its private sector creditors on how much of a loss they would be willing to accept on their bond holdings. The latest numbers suggest a 70% write-down. A pretty striking comedown for what is supposed to be a “voluntary default” and, hence, not subject to the triggers of a credit default swap on Greek debt.

While Rome burns, it’s time for some monetary and fiscal fiddling

December 23, 2011 by

Every year, on the evening of December 31, the President of the Republic of Italy addresses the Italian people with a video message broadcast by all the major radio and television networks. This “end of the year message” is traditionally an occasion for the president to wrap-up the main events of the year and to introduce citizens to the challenges ahead with optimism and confidence.

Draghi’s Stealth Plan

December 20, 2011 by

Mario Draghi has settled on a plan to pull the EU banking system back from the brink and hammer down sovereign bond yields at the same time. The European Central Bank chief has announced that he will launch an emergency liquidity assistance program on December 21, that will provide “limitless” loans to struggling banks at rock-bottom rates (1 percent) for up to 3 years.

Greece in 2011: Argentina in 2002 Redux?

December 14, 2011 by

The Greek tragedy of sovereign debt, the overlay of a potential for regional recession, social turmoil, perceptions of structural corruption, and political theatrics and brinkmanship is all too familiar. This is reminiscent of Argentina in 2002, which remains the largest sovereign debt default in economic history.

Why Cameron can’t afford to get fiscal with the EU

December 11, 2011 by

Last week’s EU Brussels summit produced a tentative fiscal compact, a mild boost of the European Financial Stability Facility’s (EFSF) reserves to €500 billion, and an acrimonious split between Britain and most of the other 26 EU member governments. The 26 members will meet again in March next year to finalise details of the fiscal compact, but British Prime Minister David Cameron is unlikely to attend. Meanwhile, markets were unimpressed by the prevarication in Brussels, with Moody’s cutting ratings on French banks, even before the summit concluded.

Europe’s economies must pull together before they fall to pieces

December 6, 2011 by

The announcement by credit ratings agency Standard & Poor’s overnight that it could downgrade the triple-A rating of Europe’s debt rescue fund has battered market confidence, which had been buoyed by a new package of austerity measures by the Italian government. The Italian stock market made gains on Monday before entering a phase of volatility and instability on Tuesday, after S&P announced that France, Germany, and 13 other Eurozone countries were put on review for credit downgrades.

Will an Incompetent European Central Bank be Allowed to Wreck the World Economy?

December 5, 2011 by

The world is eagerly waiting to see if the European Central Bank (ECB) will take the steps needed to save the euro. Specifically, is the ECB prepared to act as a central bank and guarantee the sovereign debt of the countries in the eurozone as the lender of last resort ordinarily does in a crisis? If not, there is little doubt what the outcome will be. The austerity being imposed on country after country will slow GDP growth and throw workers out of jobs.

There Will Be Blood

December 5, 2011 by

Another week to go before the euro blows up, or so we’re told again for the thousandth time. More likely is that the ECB does barely enough to keep the show on the road, fiscal austerity continues and riots intensify on the streets of Madrid, Athens, Rome and Paris. Like the film, “there will be blood” before there is any likely change toward a sensible growth oriented policy in the euro zone.

A make-or-break week: Can Sarkozy and Merkel save the euro?

December 4, 2011 by

What could be a decisive week for Europe and its common currency has begun, with the announcement of a package of fiscal austerity measures in Italy. Markets, European partners, and – perhaps above all – Italian citizens had been waiting for these measures since November 16, when Prime Minister Mario Monti was appointed by the President of the Republic to head a technical government. Speculation and rumours over the past few days indicated that the package would essentially consist of an increase in income and consumption taxes, with only mild expenditure cuts.

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