European Central Bank
The twilight of a European dream
As Washington threatens to slap economic sanctions on the countries that it believes weaken their currencies, reaping unfair advantages in trade with the United States, eurozone exporters, especially Germany, may find themselves in trouble. The root cause of the dilemma, though, is the fact that from its inception the common currency has been misused by politicians.
Italy’s 50-year bond: an ill omen?
What’s not to like about Italy’s first-ever 50-year bond? October’s brilliantly successful sale may set the template for other eurozone governments. But investors should take note that it was far from a vote of confidence in Europe’s financial and economic prospects.
Italy’s referendum and the specter of instability
On December 4, Italians will go to the polls in a referendum on amending their constitution. Prime Minister Matteo Renzi has said he will resign if the changes are rejected. A win for the opposition could be seen as a populist turn for this highly indebted country, bringing instability domestically and uncertainty about the fate of the eurozone.
QE has failed. What comes next?
Eurozone economies have been subjected to expansionary monetary policy for almost five years, and the easy-money approach has failed to jump-start demand and ignite growth. As central bankers begin to face this reality, they may have to choose between shoring up government indebtedness and letting banks go bust, or giving bankers a chance to operate and letting governments default. Which will they choose?
Central banks and corporate bonds
The latest scheme to have the European Central Bank buy corporate bonds is unlikely to turn quantitative easing into an effective stimulus policy. But there may other motivations at work. As a camouflaged bailout for big European banks and a bureaucratic carrot to slow corporate flight, expanded debt purchases make sense to policy makers in Brussels and Frankfurt.
Keeping up appearances on migration
Brussels has come up with a bright idea to help slow the flow of refugees and migrants to Europe. If you thought the 6 billion euro deal with Turkey was misguided, take a close look at the European Commission's latest brainstorm – the 70 billion euro Migration Partnership.
Europe dancing on thin ice
A recently issued report found that low-to-negative interest rates by themselves will not redress growth in Europe. Instead, they lead to capital misallocation. Along with the European Central Bank’s quantitative easing, low rates allow governments to delay necessary reforms. GIS has warned of this for more than two years.
Schauble-Draghi clash more about politics than monetary policy
In an unusual turn of events, German Finance Minister Wolfgang Schauble leveled sharp criticism at European Central Bank President Mario Draghi. At first blush the dustup seems solely to concern monetary policy. However, a closer look shows that there are bigger domestic and international political forces at play. Germany may be positioning itself as the main proponent for greater centralization within the European Union.
Loose monetary policy could be on its way out
In March, the United States Federal Reserve kept its main interest rate on hold, while the European Central Bank cut its main interest rate to zero. The moves confirmed what investors already knew: the American and European economies still have plenty of weaknesses. But despite appearances, the Fed and the ECB are on track to end their expansionary monetary policie...