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.

EU leaders need to kickstart reform

Hugo Dixon
May 26, 2014 08:32 UTC

By Hugo Dixon

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

When European Union leaders dine in Brussels on May 27, conversation is likely to revolve around three Ps: the poll, the priorities and the people.

Many of those sitting around the table, notably France’s François Hollande and Britain’s David Cameron, received a drubbing in the European Parliament elections. They will be reflecting on the rise of euroscepticism in many EU countries and the appropriate forms of response.

Do national champions merit protection?

Hugo Dixon
May 5, 2014 06:28 UTC

By Hugo Dixon

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

The French always protect their national champions, while the British have a laissez-faire approach to foreign takeovers of their top companies, right? That is certainly the caricature. Witness how France deterred PepsiCo from bidding for Danone in 2005 on the grounds that yoghurt was a strategic industry, while the UK allowed U.S.-based Kraft to move ahead with its hostile bid for Cadbury, the confectioner, in 2010.

Recent events, though, show that the picture is somewhat more complex. When news first leaked that General Electric, the U.S. industrial giant, was negotiating to buy Alstom’s power generation business, the French government’s knee-jerk reaction was hostile. But by last week, Alstom had reached a deal to sell its power unit to GE for 11.4 billion euros and Paris had softened its opposition.

Is Hollande more like Rajoy or Monti?

Hugo Dixon
Nov 19, 2012 10:41 UTC

Is Francois Hollande more like Mariano Rajoy or Mario Monti? In other words, is the French socialist president condemned to be always behind the curve with reform like Spain’s conservative prime minister? Or can he get ahead of it like Italy’s technocratic premier?

I put this question to my fellow guests at a dinner in Paris last week. France is not in imminent risk of blowing up, as wrongly implied by the Economist magazine, which used a cover picture of a lighted fuse on baguettes tied together like sticks of dynamite. France is much richer than Spain and its people are more willing to pay their taxes than the Italians. French 10-year borrowing cost is only 2.1 percent, compared to Italy’s 4.9 percent and Spain’s 5.9 percent.

That said, the country has three deep-seated problems which could ultimately cause a mega-crisis: public spending at 56 percent of GDP is way too high; industrial competitiveness has steadily eroded; and the population is in a state of denial. The last cannot be said of either Italians or Spaniards.

Hollande’s sins more those of omission

Hugo Dixon
Mar 12, 2012 09:27 UTC

Francois Hollande’s sins are more those of omission than commission. The headlines might suggest otherwise. The socialist challenger to Nicolas Sarkozy as France’s next president has promised to cut the pension age to 60, tax the rich at 75 percent, renegotiate Europe’s fiscal treaty and launch a war on bankers. But these pledges aren’t as bad as they look. The real problem is that Hollande, who has a strong lead in the opinion polls, isn’t addressing the need to reform the country’s welfare state.

Hollande is a moderate. Like Sarkozy, for example, he is promising to cut the budget deficit to 3 percent next year, from 5.8 percent as estimated by the European Commission in 2011. But he still had to throw the left some red meat in the election campaign, which runs until May. That’s not just to prevent votes drifting to Jean-Luc Mélenchon, the far-left candidate. It’s also to avoid being outflanked by Sarkozy’s own populist attacks on corporate fat cats and bankers.

Still, the precise pledges probably aren’t what they seem, as I discovered on a trip to Paris last month.