The European Crisis – ‘Financial Poker’ Games!

Reviewing the borrowing costs of European nations, a visiting intelligent alien may conclude that the European economic crisis is over and rehabilitation complete. 10-year government bond rates for Spain, Portugal, Ireland and Greece are 2.20%, 3.12%, 1.67% and 6.15% respectively. Equivalent rates for Germany, France and Italy are 0.97%, 1.31% and 2.39%. Comparable rates for […]

Draghi Delivers!

After much fanfare, the ECB has surprised the market.  It delivered a 10 bp cut in key rates and committed itself to a ABS/covered bond purchase scheme to start next month.  The euro sold off, dragging down other European currencies, and sparked a dramatic bond and stock rally. The decision to cut rates today was […]

Euro Area – Q&A on QE

By Reza Moghadam and Ranjit Teja: As inflation has sunk in the euro area, talk of quantitative easing (QE)—and misgivings about it—have soared. Some think QE is not needed; others that it would not work; and yet others that it only creates asset bubbles and may even be “illegal.” In its latest report on the euro area, the IMF assesses […]

Tinkering on the Margins: ECB Edition

Has the ECB finally ended its hard-money ways? You know the kind that raises interest rates twice during the crisis,allows aggregate demand in the periphery to stall, and fosters below-trend growth in money supply and money velocity. On Thursday, the ECB said it would be taking bold steps to stabilize the economy. It would start charging banks for the privilege […]

ECB’s Negative Deposit Rate: Will It Boost Inflation?

The European Central Bank announced on Thursday that it is moving interest rates into negative territory, charging banks for maintaining deposits with the ECB rather than paying the banks positive interest. The hope is that lower (now even negative) interest rates may provide some stimulus to the European economy which might help bring European inflation closer to the […]

The Euro Area Needs a Growth Stimulus Package

For several months, the outlook for the euro area has improved thanks to the positive results that have been achieved over the national and European level.  Budget deficits have decreased considerably since 2011, particularly in the countries hardest hit by the crisis.  Trade deficits of these countries have disappeared through fiscal consolidation and structural reforms […]

Draghi Says Nothing New; Status Quo Persists at ECB

The ECB shrugged off called from the OECD and the IMF to ease policy. Nor did the ECB make technical moves, like reducing the rate corridor by cutting the 75 bp lending rate. By arguing that inflation expectations are firmly anchored, Draghi seems to have initially dampened speculation of more dramatic action next month. It does […]

Bundesbank Says Nein and Ja on Further ECB Accommodation

Germany appears to have capitulated.  The Bundesbank has dropped its opposition to extraordinary measures, like ending the sterilization of the SMP bond purchases, and has even dropped its visceral opposition to QE, if it can be structured properly to keep within the ECB’s mandate. As Jurgen Stark’s recent op-ed piece in the Financial Times makes clear, this […]