Greek Election Will Be a Watershed in the Euro Crisis

As Greek voters prepare to go to the polls on Sunday, we are approaching a pivotal stage in the sovereign-debt crisis—and, perhaps, in the post-war history of European economic and political integration.

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Spanish Bank Rescue Package Is a Step in the Right Direction

The €100bn rescue package agreed for Spanish banks over the weekend is credible and, to that extent, should be welcomed. But it is not enough, by itself, to stabilize markets on a sustained basis.

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A Credible Recapitalization of Spanish Banks Is Now Imperative

A  credible recapitalization of the Spanish banks is now a necessary, though not sufficient, condition to stabilize markets. But there is disagreement about how to achieve this—increasing the risk of a damaging standoff and further volatility in European sovereign-debt markets.

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Euro-Area Leaders Need to Focus on More Pressing Issues

A surprising amount of common ground was reached at last week’s informal meeting of European Union leaders—but  there wasn’t agreement on joint issuance of Eurobonds.

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What Will Happen if Greece Leaves the Euro Area?

With party leaders failing to set aside their differences, Greece is set to hold another general election on June 17. The outcome is hard to predict, but one thing is clear: a Greek exit from the euro area is now a possibility that investors need to take very seriously. 

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Spanish Jitters Reveal Euro’s Fragility

Yields on 10-year Spanish government bonds have risen by 100 basis points since the beginning of March.  With attention now switching back to Spain, it seems the brief hope provided by the European Central Bank’s massive liquidity injections has proved to be a false dawn. Why has confidence evaporated so quickly?

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Could German Inflation Help the Euro Area to Rebalance?

Euro-area data have surprised on the upside in the opening weeks of 2012. This is particularly true in Germany, where there has been a strong bounce in key cyclical indicators and genuine signs of expansion. But could Germany be getting too much of a good thing?

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Latest Deal Postpones Greece’s Day of Reckoning

The second rescue package for Greece that was agreed upon yesterday by euro-area finance ministers should reduce the probability of a near-term Greek bankruptcy and possible euro exit. But substantial implementation risks remain and the latest analysis by the country’s own lenders suggests that more needs to be done in the medium term.

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Private Sector Involvement Is Unlikely in Second Portuguese Bailout

With 10-year Portuguese bond yields above 14% (see Display), the market is suggesting that Portugal will soon need another bailout from its euro-area partners. While we share the market’s skepticism about the sustainability of Portugal’s public sector finances, we doubt that policymakers at this stage will seek to impose losses on private sector creditors, as [...]

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Euro-Area Governments Should Heed S&P’s Warnings

Market reaction to S&P’s decision to downgrade several euro-area countries last week has been rather muted, probably because the move was not really a surprise. Still, I think euro-area governments should pay close attention to the rating agency’s reasoning.

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