The Great Debate UK
Thanks, Greece
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
The euro zone crisis has been a piece of luck for Britain. Imagine what would have happened without it.
In the immediate aftermath of Lehman, Britain’s position looked utterly hopeless. With a budget deficit of world-war proportions, and facing the cost of refinancing what had been two of the world’s biggest banks and were now two of the world’s biggest bankruptcies, the future for us at the end of 2008 looked dire.
Since then, our prospects have hardly been transformed, but we have at least been given a few years breathing space to get our affairs in order. For that blessing, we owe thanks to the Southern Europeans.
An ECB rate cut would be no magic wand
–Darren Williams is Senior European Economist at AllianceBernstein. The opinions expressed are his own.–
Disappointing April data suggest that the European Central Bank is set to cut the refinancing rate at Thursday’s Council meeting. This is likely to have limited economic impact but could encourage expectations of more creative policy action later, helping to take some upward pressure off the euro.
How do you police without a force?
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
You will often have heard it said that the euro zone cannot ultimately survive without fiscal union. This is complete nonsense. The truth is that, even with a full fiscal union, it cannot survive – at least, not with any form of fiscal union that one can imagine all the members signing up to.
Budget day cheer is here again
By Laurence Copeland. The opinions expressed are his own.
Budget Day again, and the pressure on Chancellor George Osborne is rising ominously. There is little agreement about what needs to be done, but complete agreement that something has to change because the state of Britain’s economy is simply awful.
Yet just look at the facts in the table below (all the data are taken from Eurostat, the EU’s own statistical agency). For the latest quarter, the UK economy contracted by 0.3 percent – but France’s performance was just as dismal, Germany’s economy shrank by twice as much, as did the euro zone as a whole. Only the USA achieved a significantly better outcome, a dazzling growth rate of zero – but at least it didn’t shrink. Year-on-year (Y-O-Y, as the pros call it), the picture is even clearer. Britain’s economic growth, a miserable 0.3 percent, was not significantly lower than Germany’s, but better than France’s minus-0.3 percent, or indeed the euro zone as a whole, which was down by 0.9 percent. Only the USA grew to any significant extent – and there are signs that it may now be starting to slow down, even before the impact of the fiscal cliff and the sequester are felt.
from The Great Debate:
Why the EU is right on Cyprus
The reaction to this weekend’s European Union bailout deal for Cyprus has gone from initial shock to rather predictable condemnation. “Europe botches another rescue,” ran the headline on an editorial in the Financial Times. “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks,’ ” Paul Krugman, the economist and New York Times columnist wrote on his blog.
As widely reported, the deal has an important claw-back component: a one-time tax on the deposits of everyone who has a bank account in Cyprus ‑ Cypriots and foreigners alike ‑ aimed at raising 5.8 billion euros of the total rescue package of 17 billion euros. It’s always possible that the hyper-alarmist scenario of a pan-European bank run actually takes place, although by Monday afternoon, even jittery stock markets across Europe were starting to grow calmer, as EU officials insisted that the Cyprus deal was exceptional.
from The Great Debate:
Without coordinated leadership, Europe will falter
There is an increasing probability that financial markets will respond negatively to the unfolding economic and political drama unfolding across Europe. So far, the European Central Bank has pumped out cash and calmed the nerves of investors, but it needs to do more. A cut in interest rates by the ECB is crucial to contribute to a revival of growth across the euro zone. On its own, however, that is not enough. Europe’s political authorities need to counter the increasingly widespread perception that they lack the will to confront the zone’s economic ailments and promote a clear path to growth – austerity policies alone will not work.
The situation has become far more serious now that the crisis has moved from the zone’s periphery to its major economies: Spain shows no signs of emerging from prolonged negative growth, Italy is now facing mounting difficulties and France is sliding into recession.
All pain, no gain for Germany
By Laurence Copeland. The opinions expressed are his own.
Whenever the question of the future of the euro zone comes up, you can always rely on someone (often a German) to say something like “Yes, of course the Germans don’t like having to foot the bill for the weaklings… but at the same time, they do get enormous benefits from having a fixed exchange rate. I mean, just look at their trade surplus. All those Mercs and BMW’s you see in Milan and Athens and…”
This argument is utter nonsense, and the economists especially ought to know better.
Chastened ECB wary of premature monetary tightening
–Darren Williams is European Economist at AllianceBernstein. The opinions expressed are his own.–
Cyclical indicators have improved, but the economic and financial backdrop in the euro area remains fragile. The ECB has clearly learned from past mistakes and is keen to avoid a premature tightening of monetary conditions.
from The Great Debate:
Stubborn national politics drag down the global economy
Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity. They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen. After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.
Only now are there signs that the long-overdue shift in national macro-economic policies may be taking place. The new Japanese government is backing up a "minimum inflation target" with a multi-billion-dollar stimulus designed to create 600,000 jobs. In what some call the “reverse Volcker moment,” Ben Bernanke has become the first head of a central bank for decades to announce he will target a 6 percent level of unemployment alongside his inflation objective. And the new governor of the Bank of England, Mark Carney, has told us that "when policy rates are stuck at the zero lower bound, there could not be a more favorable case for Nominal GDP targeting.” Side by side with this shift in policy, in every area but the Euro, there is also policy progress in China. It may look from the outside as if November’s Communist Party Congress simply re-announced their all-too-familiar but undelivered wish to re-balance the economy from exports to domestic consumption, but this time the promise has been accompanied by a time-specific commitment: to double average domestic income per head by 2020.
from Hugo Dixon:
Brexit could come before Grexit
Investors have been obsessed with the notion of “Grexit” - Greece’s exit from the euro. But “Brexit” - Britain’s exit from the European Union - is as likely if not more so. The country has never been at ease with its EU membership. It refused to join its predecessor, the European Economic Community, in 1957; it was then blocked twice from becoming a member by France’s Charles De Gaulle in 1960s; and shortly after it finally entered in 1973, it had a referendum on whether to stay.
The euro crisis has put further pressure on this difficult relationship. David Cameron’s Conservative Party, the governing coalition’s dominant group, delights in pointing out the flaws in the single currency. The party’s eurosceptics feel vindicated because they have long believed that monetary union was only possible with political union.
