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from MacroScope:

Franco-German meeting

German Finance Minister Schaeuble and his French counterpart Sapin attend news briefing after talks in Berlin

The big question of the week is whether financial market gyrations continue, worsen or calm. European stocks are being called higher at the open.

Greece has been effectively shut out of the bond market. If it and others on the euro zone’s southern flank come under persistent market pressure, in a way that hasn’t happened for two years, the onus on the European Central Bank to act will grow and grow.

None of the countries likely to be in the firing line appear to qualify for the conditions attached to the ECB’s still-unused OMT bond-buying programme, the legality of which is under review by the European Court of Justice.

So full-on QE might be the only option to restore calm if the turmoil persists or worsens. We’re a long way from that yet and internal divisions within the ECB may rule it out altogether. Maybe that dawning realization, as the Federal Reserve prepares to turn the money taps off, has contributed to the unnerving of investors.

from MacroScope:

French budget to fire EU growth debate

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France is unveiling its 2015 budget right now and it’s not making pretty reading, confirming that Paris will not get its budget deficit down to the EU limit of three percent of GDP until 2017, years after it should have done.

The health minister has said the welfare deficit is expected to run nearly one billion euros over budget this year and data on Tuesday showed France's national debt hit a record high in the second quarter, topping two trillion euros for the first time. It will near 100 percent of GDP next year.

from Ian Bremmer:

Chinese leader’s reforms are bad news for Hong Kong protesters

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In 1997, Britain returned Hong Kong to China after some 150 years of colonial rule. In exchange, China agreed to a set of principles: Hong Kong would maintain its capitalist system for half a century, by which point its chief executive and members of the legislature would be elected by universal suffrage. As the thinking went, “one country, two systems” would suffice in the interim; Hong Kong and the Mainland would surely converge on democracy in the half-century to come.

Not so fast. Recently, Beijing has been systematically moving in the other direction. The decision on August 31 to rule out democratic elections for Hong Kong in 2017 was just the latest example. Chinese leader Xi Jinping’s transformational reform agenda is driving this shift — and it does not bode well for Hong Kong.

from Breakingviews:

Asia’s top-down corporate reforms vary in promise

By Una Galani

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

Asia is in the throes of a top-down corporate reform drive. Newish leaders in China, India, South Korea and Japan are pushing to overhaul the way companies work. Their efforts to increase corporate efficiency are welcome. But investors eyeing better returns will find not all reforms are equal.

from MacroScope:

France flatlining

We get a flood of EU GDP reports today. Germany’s figure, just out, has marginally exceeded forecasts with quarterly growth of 0.8 percent but France is underperforming again and stagnated in the first three months of the year, missing estimates of 0.2 percent growth.

Robust German growth has been driven largely by domestic demand, which could help its European peers with their exports. Where all that leaves the overall euro zone figure, due later, remains to be seen. The bloc is predicted to have expanded by 0.4 percent.

from Breakingviews:

Hollande finally gets it. Can he do it?

By Pierre Briançon

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

Not that long ago a French socialist president talking about the need for supply-side reforms would have represented an intellectual revolution. After six years of financial crisis, the euro zone’s near-death experience and with the French economy stalling, it simply sounded like a long-overdue admission of reality when it came from François Hollande at his Jan. 14 press conference. Still, the slow learning doesn’t take anything from the intention to “accelerate,” as he chose to put it, economic reform.

from The Edgy Optimist:

What America won in the ‘War on Poverty’

In an unabashed endorsement of government action to alleviate the plight of the poor, this week President Obama commemorated the 50th anniversary of the War on Poverty with his own call for new policies to address the continued struggles of tens of millions of Americans.

In his official statement, Obama remarked that, “In the richest nation on earth, far too many children are still born into poverty, far too few have a fair shot to escape it, and Americans of all races and backgrounds experience wages and incomes that aren’t rising... That does not mean… abandoning the War on Poverty.  In fact, if we hadn’t declared ‘unconditional war on poverty in America,’ millions more Americans would be living in poverty today. Instead, it means we must redouble our efforts to make sure our economy works for every working American. “

from Breakingviews:

Four ways to tell China is serious about markets

By John Foley 

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

China’s new buzzword is “decisive”. That’s how the ruling party described the role it wants markets to play in the economy. It’s hard to see whether it’s more than just talk. But there are four visible ways to tell whether China means business.

from Edward Hadas:

A call for radical financial reform

The governments of developed countries have the power to rescue economies from defective finance. There is a radical solution. It would be relatively easy and at least as fair as the current slow generation-long recovery from the 2008 financial collapse.

I have been suggesting massive “start from scratch” financial reform for several years. The response is usually a mix of incredulity (it’s too hard to do) and indignation (it would be unjust). A thought experiment might help deal with those objections. Pretend that the current situation - excessive debts and deficits, unprecedented and risky monetary policy, overly powerful banks, slow GDP growth and unacceptably high levels of unemployment - was the result of a recent war.

from MacroScope:

Amnesty for undocumented immigrants would not burden U.S. economy – Levy Economics Institute

The recently passed Senate bill - S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act - that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.

A recent report from the Congressional Budget Office estimated the following:

All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.

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