On a recent trip home to Singapore, I was startled to learn just how much housing prices in the city-state have risen in my absence.
“Will no one rid me of this turbulent central banker?” Hungarian Prime Minister Viktor Orban may not have voiced this sentiment but since he took power last year he is likely to have thought it more than once. Increasingly, the spat between Orban’s government and central bank governor Andras Simor brings to memory the quarrel England’s Henry II had with his Archbishop of Canterbury, Thomas Becket, over the rights and privileges of the Church almost 900 years ago. Simor stands accused of undermining economic growth by holding interest rates too high and resisting government demands for monetary stimulus. The government’s efforts to sideline Simor are viewed as infringing on the central bank’s independence.
No longer an idle “what if” game, investors are actively debating the chance of a breakup of the euro as a creditor strike in the zone’s largest government bond market sends Italian debt yields into the stratosphere — or at least beyond the circa 7% levels where government funding is seen as sustainable over time. Emergency funding for Italy, along the lines of bailouts for Greece, Ireland and Portugal over the past two years, may now be needed but no one’s sure there’s enough money available — in large part due to Germany’s refusal to contemplate either a bigger bailout fund or open-ended debt purchases from the European Central Bank as a lender of last resort.
Do capital controls work? After years of telling us that they do not, the IMF and World Bank reluctantly conceded last year they may not be all that bad and indeed in some cases they may actually help keep away some of the speculators who have in recent years been pouring into emerging markets.
Just when you thought it was all over, Iceland looks like it’s in trouble again. The cost of insuring Iceland’s debt against restructuring or default has risen this week to 720 basis points in the five-year credit default swap market, its highest since mid-2009. That means it costs 720,000 euros a year for five years to insure 10 million euros of Icelandic debt against default.