Opinion

Hugo Dixon

Now on to the Brexit referendum

Hugo Dixon
Sep 22, 2014 08:44 UTC

By Hugo Dixon

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

With Scotland voting to stay part of the United Kingdom, attention will turn to the next potential British referendum: on whether the country will remain in the European Union. David Cameron has promised to hold an In/Out referendum on the EU if he is re-elected as prime minister in next year’s general election. There are comparisons and contrasts between the two votes, as well as lessons to be learned.

If Scotland had voted to quit Britain, the influence of both Scotland and the rump UK would have been diminished. Scotland’s economy would have been damaged. The divorce would also have been acrimonious.

Many British politicians have been happy to deploy such arguments when seeking to prevent a schism with Scotland. But some are so deeply eurosceptic that they are not willing to take on board parallel arguments about the effect of a schism between the UK and the EU.

Look at the influence point. It is hard to see how the international standing of either the UK or the rump EU would be enhanced by Britain’s exit, or “Brexit.” Vladimir Putin would be delighted at the disarray on Russia’s Western front. Think, too, how much harder it would be for a fractured Europe to construct a proper policy for confronting extremism in the Middle East.

Gas and bank security have similarities

Hugo Dixon
Sep 8, 2014 09:56 UTC

Europe is currently conducting two stress tests. One is on its energy suppliers, to see how badly they would fare if Russian gas was disrupted. The other is on euro zone banks, to ensure they are strong enough to finance economic recovery.

It is hard to know which of the two is the more important. But it is clear that an effective regime for energy security requires many of the same elements as financial stability.

One is the need for credibility in the stress tests. Europe flunked its original bank assessments by modelling scenarios that weren’t sufficiently stressful. The new test being conducted by the European Central Bank looks more credible.

EU’s three big problems all linked

Hugo Dixon
Sep 1, 2014 09:19 UTC

The outgoing president of the European Council, Herman Van Rompuy, said at the weekend that his successor, Donald Tusk, currently Poland’s prime minister, faces three big challenges: the stagnating euro zone economy; the Ukraine/Russia crisis, which he described as the gravest threat to continental security since the Cold War; and the risk that Britain will quit the European Union. The problems are all linked.

Euro zone weakness is one reason the EU is reluctant to take action against Russia. GDP growth, already anemic, ground to a halt in the second quarter. The inflation rate has fallen again, to just 0.3 percent, and the unemployment rate is stuck at 11.5 percent.

With Italy in its third recession in recent years, Germany shrinking and France flat, this is no longer a crisis of what used to be called the “little PIGS” – Portugal, Ireland, Greece and Spain. It might be best to use a new acronym “FIG” to describe the travails of the big three.

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.

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.

How Greece can turn vice to virtue

Hugo Dixon
Apr 14, 2014 09:27 UTC

Most Greeks know the expression vicious cycle – or favlos kyklos. But when you ask them the Greek for virtuous cycle, they often struggle to find the term, or even deny it exists.

After six years of recession that have shrunk the economy by a quarter and left Greece with an unemployment rate of 27 percent, it is not surprising that vicious cycles loom large in the national psyche. But there is a Greek expression for virtuous cycle – enaretos kyklos – and the country may be beginning to enjoy one.

Athens returned to the bond market last week with the issue of 3 billion euros of five-year paper. The country’s banks are also able to raise equity on the market.

Greek rebound is astonishing

Hugo Dixon
Apr 8, 2014 10:01 UTC

Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.

There are still political risks, and the real economy is only now starting to turn. But the financial recovery is impressive. The 10-year bond yield, which hit 30 percent after the debt restructuring of two years ago, is now 6.2 percent.

Two of the country’s big four banks – Piraeus and Alpha – have raised 3 billion euros of equity between them in recent weeks to reinforce their balance sheets after a stress test orchestrated by the central bank. Eurobank, another big lender, is planning to follow suit with a 3 billion euro issue later this month.

Spain’s recovery clouded by politics

Hugo Dixon
Apr 7, 2014 09:40 UTC

Spain’s recovery is clouded by politics. Mariano Rajoy has achieved a lot in the two years that he has been prime minister. Growth has finally returned; even unemployment is falling. But as Spain enters a new electoral cycle, the appetite for reform is waning. What’s more, there is a big question mark about what will happen after the next election, which has to be held by March 2016.

Rajoy cannot claim the lion’s share of the credit for Spain’s economic turnaround. That belongs to Mario Draghi, president of the European Central Bank, whose “do whatever it takes” speech in mid-2012 marked the beginning of the end of the euro crisis.

However, Rajoy’s centre-right government has doggedly pursued reform. Most important, it has liberalised the labour market and cleaned up the banks. As a result, competitiveness has been restored and exports are booming.

Europe should give Cyprus a hand

Hugo Dixon
Mar 17, 2014 10:51 UTC

Sunday marked the anniversary of Cyprus’ shock plan to raid the tiny island’s bank deposits. The envisaged tax, backed by the euro zone, covered all banks and all deposits, whether insured or not.

Although that unwise scheme was later rescinded, much damage was done to a country already deep in financial crisis. Uninsured deposits of the island’s two large troubled lenders still suffered big haircuts. Capital controls were imposed as well.

These restrictions were supposed to be a short-term measure, not that this ever seemed likely. A year on, the most important controls – preventing people or companies taking more than small sums of money out of the country – are still in place and depressing the economy’s animal spirits.