LATEST POSTS Should policymakers attempt to prevent credit default swaps? Credit default swaps (CDS) are supposed to serve as a form of insurance against default. A sovereign CDS provides insurance against a country defaulting. If such insurance is not available, then companies and investors, wishing to insure themselves against the possibility of a country defaulting, will either have to reduce their exposure to such an event (eg by selling their holdings of that country’s bonds) or hedge in some other way (eg by going short on that country’s bonds). In the run-up to the 21 per cent Greek default announced on… Read More Angela Merkel at the Justus Lipsius building in Brussels (Photo: AFP/Getty) Will the grand plan cobbled together by eurozone leaders in the early hours of Thursday morning work in saving the euro? As Sir Mervyn King, Governor of the Bank of England, remarked before it had been signed, it might buy a little time, but it is no kind of long-term solution. Before explaining why, let's first pick some holes in the plan itself, which amounts to pretty much a clean sweep for the German view on how to proceed and poses almost as many questions as it answers. The only bit which is done and dusted is the banking… Read More Angela Merkel glowers at the Bundestag today (Photo: Reuters) Alone among EU leaders, Chancellor Angela Merkel goes to tonight’s summit in Brussels with an iron-clad mandate. It is a remarkable moment. Never before – to my knowledge – has a national parliament demanded and held a prior vote on an EU summit accord. Had this principle been established a long time ago, we might have avoided much of the relentless Treaty creep and EU aggrandizement advanced by secret deals at the Bâtiment Justus Lipsius. Thank you Germany. Thank you too, judges of the Verfassungsgericht, for giving the Bundestag a veto on EU encroachments on fiscal sovereignty. The court is seemingly the…Read More It's a paradox, but with the eurozone debt crisis threatening abject disaster, the currency itself has rarely been stronger. True enough, it's come off the boil a bit of late, but the big picture of the euro's performance against the dollar since its launch in 1999 is shown by the graph above (please forgive the less than brilliant definition), and there's no doubt about it, the euro is a strong currency. Here are the five main reasons why this is the case. 1. Internally, the eurozone is a terrible mess, with extreme imbalances of debt, trade and competitiveness, but in aggregate, it looks like a remarkably strong economy. The current account is broadly in… Read More Bismarck conversing with Napoleon III after the Battle of Sedan, 1870 German victory. Defeat for France, Spain, Italy, and the Greco-Latin sphere. My instant impression from the leaked EU summit draft is that the accord is minimalist, and largely a German Diktat. It has the makings of a diplomatic Sedan 1870. If this is what landed on Nicolas Sarkozy’s desk at the Elysee yesterday, one starts to grasp, sort of, why he left Carla Bruni to labour alone as he dashed to Frankfurt to meet the two other women in hi… Read More Paul Volcker, chairman of the Federal Reserve Ouch! It's even worse than we thought – or perhaps that should read what forecasters thought. For most of us, news that CPI inflation last month reached 5.2pc won't come as much of a surprise; it's been obvious from our utility bills and shopping baskets for some time now. The older, RPI measure of inflation is worse still, at 5.6pc. And still the Bank of England likes to pretend it's trying to meet the inflation target. More monetary stimulus in the form of a further £75bn of… Read More French banks are vulnerable (Photo: Reuters) Big snag. If Europe’s leaders do indeed leverage their €440bn bail-out fund (EFSF) to €2 trillion or €3 trillion through some form of "first loss" insurance on Club Med bonds – as markets now seem to assume – the consequences will be swift and brutal. Professor Ansgar Belke, from Berlin's DIW Institute, said any leveraging of the EFSF would be "poisonous" for France’s AAA rating and would set off an uncontrollable chain of events. "It counteracts all efforts made so far to stabilize the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies. In… Read More The neo-Keynesians are out in force It's not just Labour politicians who have been laying into David Cameron's conference speech that "the only way out of a debt crisis is to deal with your debts", or his claim that the Government's austerity programme has given the country record low interest rates. Labour has got plenty of heavyweight support from the economics profession for its point of view. Take this piece from the FT's Martin Wolf (£), or in the US this from Paul Krugman, and again from Brad DeLong. OK, so these are all the usual suspects, but a… Read More Ed Miliband and Ed Balls - voodoo economists. (Photo: PA) Ever since losing the election, Labour has been running the argument that deficit reduction is counter-productive, since raising taxes and cutting spending crimps growth and therefore actually increases the size of the deficit rather than reducing it. Barroso plans to bring forward the ESM (Photo: EPA) But why would any institution or bondholder agree to converting debt into equity if government /… Read MoreAvoiding triggering Greek sovereign CDS is a mistake
Why the summit to end all summits solves nothing
Thank you Germany
If the euro is in such a mess, how come it's so strong?
Sedan again as Germany imposes terms
Volcker is right: a little inflation is a dangerous thing
A leveraged EFSF is pure poison
My goodness are these economists such ideologues
Labour's voodoo economics
Debt-equity swaps – they're nearly there
Thursday, 27 October 2011
OCTOBER 27TH, 2011 12:07
4 Comments
OCTOBER 27TH, 2011 11:51
OCTOBER 26TH, 2011 16:19
OCTOBER 24TH, 2011 11:03
OCTOBER 20TH, 2011 13:30
OCTOBER 18TH, 2011 10:37
OCTOBER 17TH, 2011 16:56
OCTOBER 14TH, 2011 16:44
OCTOBER 13TH, 2011 17:47
In the wake of this week's alarming unemployment figures, both Ed Milliband and Ed Balls have been turning up the volume. Here's the shadow chancellor speaking today (Thursday).
[Rising joblessness] also means billions more borrowing to pay for the cost of that failure. A waste of potential and a huge waste of money. Because if…Read More
OCTOBER 13TH, 2011 13:15
The Barroso plan, released yesterday afternoon, contains a rather odd paragraph:
Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. If necessary thenational government should provide support, and if this support is not available, recapitalisation should be funded via a loan from the EFSF. Any recapitalisation from public sources should be compatible with the EU state aid rules. The Commission intends to extend the applicability of the existing state aid framework for bank support beyond 2011.
Posts
