Opinion

Anatole Kaletsky

Despite election results, reason still rules Europe

Anatole Kaletsky
May 30, 2014 18:09 UTC

anatole -- french student

When can a vote of 25 percent be described as a “stunning victory” or even a “political earthquake”?

According to the European establishment, it’s when these votes go to a rabble of odd-ball extremists, ranging from overt racists and even disciples of Adolf Hitler to unreconstructed Stalinists and comically naïve anarchists.

However, the most alarming symptom of political breakdown revealed by the European parliament election is mainstream politician’s hysterical reaction to a perfectly predictable — and justifiable — upsurge of populist anger after the euro crisis.

anatole -- unemploymentAfter all, people have suffered five years of unnecessary hardship as a result of misguided economic policies. Why then should anyone be surprised that tens of millions of voters decided “to give their governments a kicking” as British Prime Minister David Cameron put it? Especially when the European elections provided an ideal opportunity for people to vent their anger with national governments, with no risk of letting the populists get anywhere near true power.

While the media were banging on about the shock and devastation of Sunday’s supposed political earthquake, this benign, and perfectly plausible, interpretation was quietly adopted by financial markets and the European business community.

China-Russia is a match made in heaven, and that’s scary

Anatole Kaletsky
May 22, 2014 17:27 UTC

putin-li

Check-mate.

As Russian President Vladimir Putin signed Russia’s historic $400 billion gas-supply agreement with China, he must have felt the satisfaction of a chess grandmaster revealing the inexorable outcome of a complicated endgame.

In theory, the next phase of the chess match between Russia and the West in Ukraine will only begin with the Ukrainian presidential election on Sunday. But Putin’s positioning of the pieces means the outcome is pre-ordained, no matter who emerges as the next president in Kiev.

putin & troopsNo wonder the Russian stock market and ruble have both rebounded — with the MSCI Russia index gaining 20 percent in dollar terms since its low point on March 14.

Euro zone’s big problems require big fixes

Anatole Kaletsky
May 16, 2014 12:56 UTC

ECB President Draghi addresses a news conference in BrusselsAt last, the European Central Bank seems ready to inject some adrenalin into the moribund euro zone economy. After last week’s news conference, when European Central Bank President Mario Draghi strongly hinted that action would take place after the June 5 council meeting, there have been a host of interviews and leaks specifically describing the new ideas the bank has in mind.

The biggest measure, now almost a foregone conclusion, will be a cut in the interest rate the ECB pays on bank deposits from zero to negative 0.1 or 0.2 percent. Bank officials have also hinted at several additional stimulus measures: extension of loans to commercial banks at low fixed rates for three years or even five years; ECB purchases of bank loans to small and medium enterprises, packaged into asset-backed securities; and concessional lending to European banks on condition they pass on these funds to small and medium businesses.

The leaks generated a great deal of enthusiasm this week. The euro weakened from almost $1.40 to $1.37; bond yields in Italy and Spain fell to record lows; and European stock markets jumped 1 percent to 2 percent.  Wednesday, the market reaction crossed the Atlantic, with interest rates on U.S. Treasury bonds falling to their lowest levels in six months.

No reason for these stock market jitters

Anatole Kaletsky
May 8, 2014 21:49 UTC

anatole -- unhappy trader

“Sell in May and go away.”

This stock market adage has served investors well four years in a row. Every year since 2010, stock markets around the world have suffered significant corrections between a high reached in May and a low in the summer or early autumn: by 15 percent in 2010, 19 percent in 2011, 9 percent in 2012 and 5 percent in 2013, as gauged by the Standard & Poor’s 500.

Given that the Dow Jones Industrial Average hit its highest level ever on April 30, while the S&P 500 peaked less than 1 percent shy of its all-time record, it may seem sensible to follow the seasonal adage. Regardless of one’s views about the long-term prospects for the world economy.

That is precisely how financial markets have behaved since May 1. In the past week, investors around the world responded negatively to what have been, by any standards, extremely favorable economic figures from the United States, Britain and even Europe.

Why the Russian sanctions don’t work

Anatole Kaletsky
May 1, 2014 20:53 UTC

putin!!

Why did the U.S. and European sanctions against Russia earlier this week trigger a rebound in the ruble and the Moscow stock market?

To understand this paradox it is worth recalling Yes Minister, the British TV comedy about a blundering politician who stumbles from crisis to crisis with the same justification for every panic response: “Something must be done. This is something –– therefore it must be done.”

The problem with this syllogism is that doing something may be worse than doing nothing — and the Western decision to rely on economic sanctions in the Ukraine crisis is a case in point.

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