The Greek deposit contagion

As is so often the case, it is usually an accelerated flow of money in a particular direction that forces the hand of policy-makers and elected officials.
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17/05/2012 @ 09:57 GMT

The difficulties of lending to the IMF

Having exhorted the eurozone to come together and create momentum towards fixing its structural-deficit problems, talk of maintaining the EFSF alongside its successor, the ESM, seems to have been enough of a display of good intent by euro members for the UK Chancellor to publicly consider his next move, dipping into the UK wallet for a GBP 10bln loan to the IMF.
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30/01/2012 @ 16:04 GMT

CDU scuppers EFSF-ESM merger plan

Angela Merkel’s hope that the firewall for Europe could be buttressed by allowing unused funds from the EFSF to be placed into the ESM have been blocked by her own party. According to a Bild am Sonntag story yesterday, her party has opposed the measure because Germany would have been liable for an additional EUR 211bln above what had already been approved. No doubt this is part of the explanation for the euro’s softness this morning.
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30/01/2012 @ 10:00 GMT

The euro as a funding currency

Has the euro become the new carry currency of choice? That’s the suggestion being thrown around on the back of the performance seen so far this year, together with the injection of 3-yr funds last month and the talk of anything up to EUR 1trln or more at the next 3-yr tender in February. We will have to wait a month or two for official data to fill in some of the gaps, so it is really only the market action that we have to go on at present.
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24/01/2012 @ 08:18 GMT

Burden of responsibility lacks a home in Europe

Some fairly strong words from Italian PM Monti today in the FT which, when combined with the EFSF downgrade, increase the perception that the burden of responsibility has no shoulders to rest on in Europe. In sum, he feels he’s done his bit and there will be a “powerful backlash” from voters if there is not more help from the EU and Germany to lower Italian borrowing costs.
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17/01/2012 @ 09:28 GMT

The inevitable China slowdown

The pace of GDP growth in China slowed to the softest rate for ten quarters overnight, although at 8.9%, the economy has hardly ground to a halt. Furthermore, the growth was a touch firmer than expected (market was looking for 8.7%), but as Chinese statistics go, this difference is insignificant. Nevertheless, what China needs to see is a slowing in the pace of growth and a softening of the credit cycle, but not so much that it threatens the stability of the economy.
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17/01/2012 @ 08:22 GMT

Contingency planning in Germany

No doubt the German government is drawing up contingency plans amidst the alarmingly rapid deterioration in eurozone financial affairs over the last few weeks. The German Chancellor has firmly rejected Eurobonds (for the time being), she is dead against ECB money-printing and only accepted the expansion of the EFSF’s fire-power under strict conditions.
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28/11/2011 @ 09:52 GMT

The window of hope for Italy

The crux of the matter in Italy is the degree to which this is a fiscal or political crisis. The question is valid because the fiscal and economic backdrop is different and in many ways not as extreme as for the recently bailed-out nations. At the same time, the politics of Italy is more fractured than for pretty much any other eurozone nation.

10/11/11 @ 13:41 GMT by Simon Smith, Chief Economist

Italy beyond redemption

The Berlusconi bounce was short-lived to say the least. As we talked about earlier today, whoever is in charge, the numbers remain the same and this morning they are even worse. The Italian 10yr bond has reached 7%, the yield curve is nearly inverted with 2yr paper yielding more than 10yr paper. Yield curve inversion proved to be the death knell for Portugal and also Greece (although not for Ireland). Moreover, the spread over German paper (10yr at 520bp) is at the level at which Portugal was bailed out and not far at all from the level for Ireland.
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09/11/2011 @ 10:43 GMT

Merkel the puppet-master of Europe

A day after the EU’s latest attempt to diffuse a crisis that threatened its existence, palpably clear is that it was Germany calling the shots. Not a surprise, it could be contended, because these days it is the Germans that have by far the healthiest balance sheet within Europe. Merkel in particular deserves an enormous amount of credit. She has delivered harsh messages to many European leaders (Greece, Italy, France, Portugal, Spain), which has invariably triggered enormous hostility and shrill protests.
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28/10/2011 @ 10:17 GMT