Dec 6, 2011 12:01 UTC

ECB bazooka may be short on credibility ammo

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

The European Central Bank may be readying its bazooka. Euro zone bond markets are rallying amid hopes that an agreement by European governments on fiscal reform may clear the way for the central bank to start massive bond purchases. But bazookas can backfire.

Ideally, an intervention would create a virtuous circle whereby investors were once again willing to hold peripheral debt. That might allow the ECB to calm markets without actually buying that much.

COMMENT

Bondholders need to substantially scale back their expectations of a “miracle cure” for the eurozone crisis.

The reality is that:

(1) no eurozone nation or organization has the ability to “buy unlimited quantities of debt”, and

(2) the eurozone cannot become the United States of Europe for a multitude of political and economic reasons.

The sooner bondholders face these two realities, the sooner the crisis can be dealt with in a more constructive manner.

Right now, simply demanding an unlimited supply of (printed) money will not solve anything, and probably worsen the situation by creating more unsustainable debt levels, and may actually bring on the global financial crisis everyone fears.

Forcing nations to reduce their standard of living will only create political tensions on top of the already existing economic problems.

This is a massive financial crisis that was allowed to build up over time when things were going well, but now they aren’t, and it is unrealistic to expect a quick and easy solution.

The reality is this will take years to resolve, if it can be resolved at all.

Posted by Gordon2352 | Report as abusive
Dec 5, 2011 04:11 UTC
Hugo Dixon

from Hugo Dixon:

Euro Disziplin may store up trouble

The euro zone will probably get another short-term fix at its summit this week. Exactly how the fix will work isn’t clear. But both Germany and the European Central Bank have softened their positions so much that some sort of solution is in the works. The ECB will probably cut interest rates and spray more liquidity at the troubled banking system; it may also step up its purchases of government bonds; and some scheme for assembling enough money to bail out Italy and Spain -- probably by getting national central banks to lend money to the International Monetary Fund, which could then pass it on to Rome and Madrid – may be unveiled.

All this would be cause for celebration. The problem is the price that Germany and seemingly the ECB are demanding for their help: fiscal discipline, embedded in a treaty. Merkel wants the European Commission in Brussels to have the power to overturn irresponsible national budgets and for the European Court of Justice to fine governments that step out of line.

COMMENT

The global financial crisis was created by corruption on Wall Street, the US Congress, and the real estate industry and lenders. Fraudulent securities were exponentially multiplied and sold all over the world. Europe is now being forced within a few months to reorganize itself and is taking care to not leave itself vulnerable to more predation by investment banks and is trying to balance the need to meet immediate financial reforms with maintaining national sovereignties. Europe will survive intact. America may survive if it stops selling its soul to the devil for a few pieces of silver.

Posted by Greenspan2 | Report as abusive
Dec 2, 2011 15:48 UTC

Loan hangover will cast pall over European buyouts

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

Once again, banks in Europe have been left standing when the music stopped. In an echo of 2008, lenders backing private equity deals have found themselves with a big backlog of unsold loans. That bodes ill for future buyouts.

Nov 30, 2011 22:19 UTC

Governments are now world’s financial engineers

By Antony Currie and Agnes T. Crane
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The last financial crisis was supposed to have killed off financial engineering. It certainly seems to have for the most part turned excess leverage and overly complex borrowing structures into a pariah. But Western authorities have embraced them with gusto.

Nov 14, 2011 21:45 UTC
Edward Hadas

European bond buyers: often wrong, never in doubt

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

Legend has it that a senior Swedish official, after a trip to New York in the midst of the Nordic country’s financial crisis two decades ago, said: “We shall never again trust our economy’s future to the whims of 25-year old men with too much testosterone.”

COMMENT

Is “efficient markets hypothesis” still being taught?

Posted by whirdym | Report as abusive
Nov 2, 2011 19:32 UTC

Debt triangles return to haunt Chinese firms

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

Chinese companies’ robust earnings growth doesn’t tell the full story. Despite strong net income growth, operating cashflow deteriorated sharply in the first half. Many companies increased credit to customers to drum up sales as demand weakened. If those customers can’t pay, the resulting bad debt could hit companies and their lending banks. Similar “debt triangles” haunted Chinese companies in the 1990s.

Oct 3, 2011 21:45 UTC

HP would make lucrative Oracle target

By Robert Cyran and Richard Beales
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Investors unimpressed by Hewlett-Packard’s dysfunctional governance have sold off its shares, leaving the tech company vulnerable to a bid. And Larry Ellison’s acquisitive Oracle is a credible potential suitor. At least financially, a deal would stack up. A Breakingviews analysis suggests that even paying a 40 percent premium, Oracle could reap a hefty return.