Archive

Reuters blog archive

from Hugo Dixon:

Don’t bet on EU treaty change

Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union’s treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.

The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin’s pet projects – a treaty that restricted borrowing by euro zone countries – unless it was given guarantees to protect the City of London.

But have the two countries really found a formula that simultaneously solves the EU’s two main problems? There are reasons to be sceptical.

Schaeuble and Osborne wrote in a joint article in the Financial Times that the euro zone needs a common fiscal and economic policy. Meanwhile, as it integrates further, those EU countries that don’t use the single currency such as Britain shouldn’t be put at a “systematic disadvantage.”

from MacroScope:

ECB deflation risk denial has echoes of 2009

Photo

Euro zone policymakers like to talk. They often contradict each other at separate speaking engagements on the same day. But they have struck a chorus in recent weeks, asserting that deflation is not a threat.

Members of the ECB Governing Council have been particularly vocal, insisting they will not have to alter policy to counter falling prices.

from Breakingviews:

Hong Kong can’t build away high house prices

Photo

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hong Kong’s plan to cool an overheated housing market by increasing supply sounds like repeating past mistakes. Even if the territory is able to boost construction as much as it intends, the expansion is modest. Property prices remain at the mercy of external forces.

from Edward Hadas:

Bitcoin is a step back not forward

The developers of bitcoin are trying to show that money can be successfully privatised. They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state.

Bitcoin relies on thoroughly contemporary technology. It consists of computer-generated tokens, with sophisticated algorithms guaranteeing the anonymity, transparency and integrity of transactions. However, the monetary philosophy behind this web-based phenomenon can be traced back to one of the oldest theories of money.

from MacroScope:

Auto-pilot QE and the Federal Reserve’s taper dilemma

Photo

 It wasn't supposed to be this way.

When the U.S. Federal Reserve launched its third round of quantitative easing, or QE3, it was hailed as an "open-ended" policy that would last as long as needed. Most important for investors, the pace of the bond buying - which started at a somewhat arbitrary $85 billion per month - would be "data dependent." Especially throughout the spring, officials stressed they were serious about adjusting the dial on QE3 depending on changes in the labor market and broader economy. But as the unemployment rate dropped to 7.3 percent last month from 8.1 percent when the program was launched in September, 2012, the bond-buying has effectively been on auto-pilot for 14 straight months.

Now, some are wondering whether the decision not to at least tinker with the program has made the first so-called taper a bigger deal than it needed to be. "When you don't react to small changes in the data with small changes in the policy then the markets tend to read more into it when you do change policy," St. Louis Fed President James Bullard said last week after a speech in Arkansas. "It makes policy a little more rigid than it maybe should be."

from Hugo Dixon:

Greece’s reform job isn’t even half done

Greece’s reform job is not even half finished. The government hasn’t done enough to root out the vested interests that strangle the economy. Nor has it cracked down fully on tax evasion or pushed hard enough to privatise state-owned properties.

On the other hand, Antonis Samaras’ coalition is so fragile that it could collapse if the troika - the European Commission, the European Central Bank and the International Monetary Fund - forces it to impose more austerity. That could lead to a new phase in the Greek crisis. The government’s best bet is to make a sharp distinction between structural reform and austerity - and persuade its lenders that it’s so serious about the former that more cuts and taxes aren’t required.

from Breakingviews:

UK’s politicians race to the bottom on policies

Photo

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The next UK general election is in 2015, and the country’s politicians are already engaged in a classic pre-electoral sport: the race to the bottom. They are desperate for policies which please voters and the competition is fierce. Popularity is the aim, populism is the method. None of it is going to do the economy any good.

from MacroScope:

Too early to call revival in Latin America manufacturing

It may be too early to herald a revival of Latin America's manufacturing following a recent currency decline, according to a report by London-based research firm Capital Economics.

Increased competitiveness of local factories has been seen as a good side effect of the currency shock triggered by prospects of reduced economic stimulus in the United States. However, the data compiled by Capital Economics suggests there is still a long way to go before investors see any fireworks.

from Breakingviews:

UK house prices needs less rigging – not more

Photo

By Chris Hughes

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Britain’s professional home valuers are rightly worried about bubbly residential property prices. Their suggested policy response is ingenious – a requirement that the Bank of England curbs mortgage lending when annual house-price growth exceeds 5 percent. Such a counter-cyclical approach is a good idea, but setting a trigger for intervention is just as misplaced as the government schemes that are currently inflating the market.

from Breakingviews:

Review: A blunt-edged hatchet job of free markets

Photo

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Bryan Gould’s new book is a closely argued critique of current trends in globalisation, monetary policy, and big business. Gould, a senior figure in the UK Labour Party in the 1980s has found some culpable targets. But his own answers are unconvincing.

  •