The Eurozone’s Imperfect Banking Union

In her first interview since becoming the head of the new Single Supervisory Mechanism (SSM) in Europe, Danièle Nouy talked a big game about letting European banks fail. Policymakers in Europe have been busy agreeing on a road map for how to save banks and, when necessary, how to resolve them. The progress that has been made on establishing a banking union was unthinkable only 12 months ago. However, the road map that policymakers have agreed to is flawed and fails to achieve the primary goals of banking union.

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How Germany Just Undercut the Euro

A German court may have just weakened European Central Bank President Mario Draghi’s most potent weapon in the battle to save the euro.

Back in July 2012, Draghi calmed panicked markets with a pledge to do “whatever it takes” to defend the euro and with a program, known as outright monetary transactions, to stabilize interest rates throughout the euro area by buying the bonds of financially distressed governments. The move was a game changer, shifting the crisis in Europe from acute to chronic. European markets have been relatively calm ever since. Read more of this post

Berlusconi Prepares a New Italian Drama

A political storm brewing in Italy has the potential to disrupt the calm that has prevailed in the euro area.

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Bulgarian Election Shows Need to Clean House

It looks as though the center-right Citizens for European Development party won Bulgaria’s early elections, the same party that triggered the vote by resigning from government amid protests in February. So has anything changed?

The short answer is yes. The elections show that Bulgarians have lost all faith in a corrupt elite, and the next government — whatever shape it takes — is likely to be weak and unstable. Read more of this post

ECB’s Parking Fees Show Its Weakness

European Central Bank President Mario Draghi surprised markets and analysts last week by saying the central bank is open to an unconventional stimulus tactic: pressuring banks to lend by charging them a fee for parking cash at the ECB.

The development does more to highlight the limits of the ECB’s powers than to demonstrate its boldness in dealing with the euro area’s economic slump. Read more of this post

Germany Should End Austerity, Not Ireland

Anti-austerity fever is sweeping Europe as policy makers decide the way to get from crisis to growth involves higher spending. Well, not so fast.

The fever has already spread to the highest levels. At the International Monetary Fund’s recent spring meetings in Washington, IMF Managing Director Christine Lagarde and her deputy, David Lipton, repeatedly urged euro-area countries to focus on investment rather than budget cuts. Read more of this post

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