Opinion

Hugo Dixon

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.

The phrase “capital markets union” is a conscious echo of the EU’s new banking union. But there are several important differences. Britain is not part of the banking union, but it should be in the capital markets union – the project wouldn’t amount to a row of beans if it excluded the City of London. And a capital markets union should not involve the European Central Bank supervising the EU’s securities markets on top of euro zone lenders. Supervision is certainly needed to stop market participants engaging in shenanigans such as manipulating interest or exchange rates. But that can be achieved mainly through existing national authorities.

So what then is needed? There are five main pillars.

First, deregulation. The EU is supposedly committed to free movement of capital. But there are still barriers. For example, non-bank lenders established in one country are not automatically free to extend credit across the EU unless they get banking licences in other countries. This gums up the flow of capital. Such restrictions should be removed.

How to fix the UK’s housing mess

Hugo Dixon
May 19, 2014 09:56 UTC

By Hugo Dixon

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

The Achilles’ heel in Britain’s strong economic recovery is the mess in the housing market.

House prices are rising yet again – by 10.9 percent in the year to April, according to Nationwide. This raises the risk of yet another cycle of boom and bust, so much so that the Bank of England recently described rising house prices as the “brightest light” on its risk dashboard.

Don’t bet on EU treaty change

Hugo Dixon
Mar 31, 2014 09:14 UTC

Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union’s treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.

The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin’s pet projects – a treaty that restricted borrowing by euro zone countries – unless it was given guarantees to protect the City of London.

But have the two countries really found a formula that simultaneously solves the EU’s two main problems? There are reasons to be sceptical.

Greece’s reform job isn’t even half done

Hugo Dixon
Nov 11, 2013 09:51 UTC

Greece’s reform job is not even half finished. The government hasn’t done enough to root out the vested interests that strangle the economy. Nor has it cracked down fully on tax evasion or pushed hard enough to privatise state-owned properties.

On the other hand, Antonis Samaras’ coalition is so fragile that it could collapse if the troika – the European Commission, the European Central Bank and the International Monetary Fund – forces it to impose more austerity. That could lead to a new phase in the Greek crisis. The government’s best bet is to make a sharp distinction between structural reform and austerity – and persuade its lenders that it’s so serious about the former that more cuts and taxes aren’t required.

The atmosphere in Athens, which I visited last week, is tense. One reason is that two members of the ultra-right wing Golden Dawn party had just been murdered in a professional hit job. That followed the killing of a left-wing rapper by a member of Golden Dawn which, in turn, had triggered the arrest of the party’s leader. No one is quite sure whether this is the start of a cycle of violence which could destabilise the government, drive away tourists (the country’s main source of export revenues) and undermine business confidence.