Euro-Area Periphery Faces More Pain to Complete Rebalancing
Most peripheral euro-area countries have significantly improved their competitiveness recently, but more needs to be done. With currency devaluation ruled out, further downward pressure on labor costs is likely, which will probably deepen and prolong recessions and interfere with fiscal adjustment.
read moreGreece Still Needs a Long-Term Growth Plan
Even by the standards of the sovereign-debt crisis, the provisional agreement reached yesterday by euro-area finance ministers and the International Monetary Fund (IMF) on a second Greek rescue package looks like a messy fudge. It is clear that Greece’s euro-area partners are determined to avoid a near-term euro-area exit, but a long-term solution will require [...]
read moreEuro Area Still in Denial about Failure in Greece
Despite the Greek government’s best efforts, last night’s meeting of euro-area finance ministers failed to approve the release of new funding. We think it’s only a matter of time before Greece gets its money. But the latest delay reflects deep disagreement about how to reduce current unsustainable debt levels. Until the euro area addresses this [...]
read moreECB Bond Buying Is a Double-Edged Sword
European Central Bank (ECB) president Mario Draghi’s promise to do “whatever it takes to preserve the euro” and create a new bond-purchase program has been positive for market sentiment. But the program also carries real dangers if it breaks the fragile consensus on the board of the ECB and eases the pressure on governments to create a [...]
read moreBank of England Still Aiming at the Wrong Target
The UK is celebrating a near three-year low in consumer price inflation, but we think the Bank of England (BOE) should be more worried about the role that money and credit play in the inflation process.
read moreCollapse in UK Investment Income Is Cause for Concern
A collapse in direct investment income was the main factor behind the UK’s record second-quarter current account deficit. It’s too early to know whether this represents a permanent shift. But, if it does, it would make rebalancing the economy more difficult and have important implications for the pound.
read moreEuro-Area Interest Rates: To Zero and Beyond?
There has been some speculation that the European Central Bank (ECB) may soon push its deposit rate into negative territory.
read moreWeaker Growth Helps Shift Germany’s Approach to Sovereign-Debt Crisis
Recent German data show clearly that the sovereign-debt crisis is starting to bite. This might help explain why the government has given a green light to the European Central Bank’s (ECB’s) new sovereign-bond purchase program. It may also indicate a more lenient approach to Greece—at least for the time being.
read morePolicymakers Powerless to Stem Capital Flight from Spain
Capital flight from Spain is accelerating. As foreign investors and banks pull massive sums out of the country, policymakers look powerless to stop it.
read moreEuro Area: Locked in a Cycle of Market Pressure and Policy Response
The European Central Bank (ECB) has raised the prospect of a more effective bond-purchase programme. Unfortunately, it may require additional market pressure for governments to unlock that support.
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