European Central Bank
‘Overbanking’ in Europe
While American banks recovered from the 2008 financial crisis, lenders in Europe have languished. Contrasting regulatory approaches and economic environments account for some of the differences, but European banking authorities have their own explanation: “overbanking.” Their reasoning is odd, not least because the European Union’s banking sector is shrinking.
The Italian challenge
Italy’s public finance troubles are making waves again, but the new government’s budget proposal does not spell disaster, nor should debt servicing create a big problem, considering today’s low interest rates. But Italy’s leaders have decided to transform their conflict with the European Union into a casus belli. Will the conflict end in an Italian crisis or a new EU architecture?
Orderly failure: The EU’s Bank Recovery and Resolution Directive
After the 2008-2009 financial crisis, governments are wary about bailing out distressed banks with taxpayer money. But the bail-in procedures implemented in 2016 by the European Union, while helping minimize some risks, have their own drawbacks. If new proposals are adopted to give resolution authorities more preemptive powers, they will give technocrats unprecedented control over the banking industry.
Opinion: Cryptocurrencies – fears and opportunities
After a few years of hype, experts are now tamping down expectations for cryptocurrencies. Indeed, several concerns about security and regulation need to be addressed. But cryptocurrencies – and the blockchain technology they are based on – also offer tremendous room for innovation and efficiency. By competing with traditional fiat currency, they could help profligate governments and central banks become more disciplined
The euro and the promise to end monetary profligacy
As the European Central Bank winds down its quantitative easing program, none of its future policy options look especially promising for the euro. While investors would welcome a more neutral monetary stance, that could spur political tensions in the euro area that could roil financial markets. Meanwhile, regulation is on the rise and growth could suffer, with unpleasant consequences for the single currency.
The false end of quantitative easing
In June, the European Central Bank made the fateful announcement that it would phase out its bond-buying program – called quantitative easing, or QE – by the end of this year. But putting an end to net bond purchases is not the same thing as ending the ECB’s ultra-lax monetary policy. By leaving the door open to rolling over its massive balance sheet of bonds as they mature, policymakers could keep oxygenating the euro area’s economy for years to come.
Dark clouds gathering over the global economy
We are probably coming to the end of a global economic recovery. But with interest rates still hovering around zero, central banks will have no ammunition to fight a recession. Meanwhile, debt is high and more trade barriers are going up. The underlying causes of global economic imbalances, and not just the symptoms, must be addressed.
The consequences of prolonged low interest rates in Europe
Monetary policymakers are becoming preoccupied with the risks of persistently low interest rates to Europe’s still fragile economic recovery. Ultra-easy credit is creating growing economic distortions and asset bubbles, while reviving volatility and risk in financial markets. The European Central Bank realizes it must “normalize” rates, but it worries that sudden tightening could precipitate a financial crisis that could be as bad or worse than 2008-2009.