Opinion

Hugo Dixon

Euro crisis is sleeping, not dead

Hugo Dixon
Jul 28, 2014 09:07 UTC

Euro zone policymakers may feel they can afford to relax this summer. That would be a terrible error. The euro crisis is sleeping, not dead.

The region is suffering from stagnation, low inflation, unemployment and debt. The crisis could easily rear its ugly head because the euro zone is not well placed to withstand a shock.

What’s more, it’s not hard to see from where such a blow could come. Relations with Russia have rapidly deteriorated following the downing of the Malaysia Airlines flight over Ukraine. If Europe imposes sanctions that make Moscow think again, these will hurt it too.

The euro zone needs to take measures to insure itself against disaster: looser monetary policy by the European Central Bank to boost inflation; a new drive for structural reform, especially in France and Italy but also in Germany; and some loosening of budgetary straitjackets.

First, though, look at the problem. Financial markets have been calm for the last two years since Mario Draghi, the ECB’s president, said he would do “whatever it takes” to preserve the euro. But the euro zone is barely growing. The International Monetary Fund last week predicted it would notch up just 1.1 percent growth this year. That’s a pathetic rebound given the recession’s severity.

What is EU capital markets union?

Hugo Dixon
Jul 21, 2014 09:31 UTC

What is capital markets union? Jean-Claude Juncker, the European Commission’s president-elect, has embraced the goal of creating one for the European Union. But so far it is more of a slogan than a set of policy actions. There’s no harm in having a catchy term to encompass a myriad of specific plans, but the idea needs fleshing out.

The first thing is to clarify the goals. One is to finance jobs and growth throughout the European Union. Another is to have a financial system that is better able to absorb shocks. Banks are shrinking and so can’t do the job of funding economic expansion on their own. Nor are they good at coping with crises. Indeed, they often magnify them, as the credit crunch and euro zone saga showed.

The solution is to beef up non-bank finance – everything from shares and bonds to shadow banking and much else too. It is also to integrate further the EU’s capital markets. That will lead to greater critical mass and lower financing costs, as well as soften the blow of an economic shock by sharing the pain across a wider area provided risk is really transferred from bank balance sheets.

UK prepares for possible EU failure

Hugo Dixon
Jul 16, 2014 09:22 UTC

David Cameron looks to be preparing for the possibility that his plan to renegotiate Britain’s relationship with the European Union will fail. The UK prime minister would then campaign for the country to quit the EU in a referendum he plans to hold by 2017. That seems the best way to interpret his appointment of a eurosceptic foreign minister and the nomination of a little-known former lobbyist as Britain’s European commissioner.

This is not to say that Cameron wants to take Britain out of the EU – which would be a historical mistake. It is rather that he apparently thinks quitting could be an acceptable Plan B that would keep him in his job and his Conservative party reasonably united.

The British premier has never publicly said how he would campaign if he doesn’t manage to reform the EU and the country’s relationship with it. He used to dodge the question by saying he was confident of securing significant changes, while being fairly woolly about what reforms he was actually looking for.

How to fight UK immigration fears

Hugo Dixon
Jul 14, 2014 08:55 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

If the UK leaves the European Union, the main reason will probably be because people fear immigrants are overrunning the country. The best way of assuaging these concerns is to show how free movement of people within the EU benefits the economy and society overall, while acknowledging that some groups may be harmed and working hard to improve their lot.

So far, David Cameron’s Conservative-led coalition party has not done this effectively. The field has therefore been left open to the UK Independence Party, which wants to pull Britain out of the EU and which has cleverly fanned and exploited the native population’s fears about immigration.

Matteo Renzi is on a roll

Hugo Dixon
Jul 7, 2014 09:00 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

Matteo Renzi is on a roll. The Italian prime minister is a brilliant politician. His youthful dynamism has bought him time with his people, the markets and the European Union to carry out the immense job of reforming Italy. But he has yet to show he can execute. He now needs to, because even his time will run out.

Renzi has had a good four months in the job after he pushed aside his predecessor Enrico Letta. His emphatic victory in the European Parliament elections gave him a legitimacy that the murky manner of his ascension lacked.

EU would also be harmed by Brexit

Hugo Dixon
Jun 30, 2014 09:02 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

It is not just Britain which would be damaged if it quit the European Union. So would other members. Jean-Claude Juncker’s nomination as Commission president at last Friday’s summit increases the chance of Brexit – Britain’s exit from the EU. Leaders from all countries now need to work to limit the risk it happens.

David Cameron went out on a limb to block Juncker, and failed. The UK prime minister mishandled the diplomacy, notably by seemingly threatening to pull out of the EU if the former Luxembourg premier got the job.

Is Greece losing its reform drive?

Hugo Dixon
Jun 23, 2014 08:34 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own. 

Is Greece losing its reform drive? Prime Minister Antonis Samaras has stuck to a harsh fitness programme for two years. But just as it is bearing fruit, he has sidelined some reformers in a reshuffle. There is only one viable path to redemption for Athens: stick to the straight and narrow.

The Greek economy is not out of the woods yet, although the measures taken to balance public finances and restore the country’s competitiveness are having their effect.

Cameron’s cack-handedness risks Brexit

Hugo Dixon
Jun 16, 2014 08:57 UTC

David Cameron’s cack-handed European diplomacy risks leading Britain out of the European Union.

The latest example is the way the UK prime minister has mishandled his campaign against Jean-Claude Juncker becoming president of the European Commission, the EU’s executive arm. Cameron is right to try to block the former Luxembourg prime minister’s candidacy – both because Juncker is not the right person to reform the EU and because the way he is being promoted constitutes a power grab by the European Parliament. But the British prime minister’s tactics have actually made a Juncker presidency more likely.

If Cameron loses this particular battle, the chances of a Brexit – Britain’s exit from the EU – will shoot up. This is partly because Juncker himself will presumably not want to help the British prime minister with his plan to renegotiate the UK’s relationship with the EU. And if Cameron can’t secure many goodies from his renegotiation scheme, he won’t have much to show the electorate in a referendum he plans to hold on Britain’s membership in 2017. (This will only happen if he is still prime minister then, which is far from certain since there is a general election in 2015).

Six solutions for the UK housing crisis

Hugo Dixon
Jun 9, 2014 09:28 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

Britain’s main economic problem is that the supply of homes isn’t rising nearly as fast as demand. This doesn’t just create the risk of a new housing bubble; young people are finding it increasingly hard to find places to live, especially in crowded London and southeast England. So I make no apologies for returning to the topic after only three weeks.

The solution isn’t mainly to build new homes on greenfield sites. It is understandable that Brits don’t want to concrete over this green and pleasant land. Rather, the thrust of policy should be to use existing housing stock much more effectively, while building new homes in cities.

EU needs more non-bank finance

Hugo Dixon
Jun 2, 2014 08:40 UTC

The European Union needs more non-bank finance. Banks are on the back foot. On their own, they won’t be able to fund the jobs and growth the EU is desperate for. Non-bank finance needs to take up the slack.

The European Central Bank and Bank of England have made a good start by identifying the importance of reviving securitisation – the process of packaging loans into bond-like securities which can then be traded on the market. The two central banks have just published a joint paper describing blockages in the system which have all but killed EU securitisation since the financial crisis.

But securitisation is only one piece of the non-bank finance landscape. Similar leadership is needed to invigorate venture capital, equity investment, bond issues for small companies, shadow banking and so forth.