Little 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.
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Don’t Be Afraid of European High Yield…
Be Selective
The European financial crisis continues to challenge high-yield investors. Some were wary of Europe’s issues and stepped away last year, only to see European bonds dominate through the unpredictability. Others want in now, but worry that they’ve missed the rally.
read moreCracks Appear in the French Economic Model
Today’s PMI data point to a deepening recession in France at a time when Germany is showing tentative signs of life. Is the euro crisis exposing the weaknesses of the French economic model?
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 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 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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