Likely Rate Cut from the European Central Bank Will Be No Magic Wand
Disappointing April data suggest that the ECB is set to cut the refinancing rate at Thursday’s Council meeting. This is likely to have limited economic impact but could encourage expectations of more creative policy action later, helping to take some upward pressure off the euro.
read moreLittle Cyprus Sparks Big Contagion Fears
The situation in Cyprus is still very fluid and very serious—perhaps more so than in Greece last year. While the country may be too small to have a meaningful direct impact on the rest of the euro area, the big issue for markets is the potential for contagion to more systemically important countries.
read moreChastened ECB Wary of Premature Monetary Tightening
Cyclical indicators have improved, but the economic and financial backdrop in the euro area remains fragile. The ECB has clearly learned from past mistakes and is keen to avoid a premature tightening of monetary conditions.
read moreIs the Euro “Dangerously High”?
Jean-Claude Juncker’s view that the euro is “dangerously high” isn’t shared by the European Central Bank (ECB). As long as this is the case, the single currency may continue to defy fundamentals and act as an unwelcome headwind for an economy still struggling to break out of recession.
read moreEuro-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 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 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 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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Draghi’s Dilemma: How to Meet
Heightened Expectations
European Central Bank Governor Mario Draghi has raised expectations ahead of this week’s ECB Governing Council meeting.
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