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

Slovenia Bailout Would Be Spanish-Cypriot Mongrel

The ink on the provisional bailout agreement for Cyprus was hardly dry last month before bond markets shifted their attention to Slovenia, another small euro- area country with a banking problem. The Slovenian government’s borrowing costs subsequently shot up.

The fear that Slovenia might be the next Cyprus, with international creditors again forcing losses onto bank bondholders and uninsured depositors, is only partly justified. Slovenia isn’t Cyprus, and its rescue program, when it comes, will probably look like a hybrid between the Spanish-style bailout and the Cyprus-style bail-in. Read more of this post

How to Kill a Banking Union the German Way

The most effective way to block any measure in the European Union is to say it requires a treaty change. This is the sucker punch German Finance Minister Wolfgang Schaeuble delivered at an April 13 meeting with his EU counterparts in Dublin.

According to Schaeuble, the EU can’t make more progress towards setting up a banking union within the existing EU treaties. Germany says that a treaty change is needed to properly separate the banking supervision and monetary policy sides of the European Central Bank, once the ECB takes over supervisory duties for all 17 euro area countries. Read more of this post

Germans Are Poorest in the Euro Area. Really?

With a title like “The Eurosystem Household Finance and Consumption Survey,” the European Central Bank’s latest piece in its Statistics Paper Series doesn’t sound like a page-turner. It has received a lot of attention, though, because of its conclusion that the poorest households in the euro area are German.

These findings are likely to incite a lot of resentment among German taxpayers, who will no doubt feel all the more strongly that they shouldn’t have to bailout other countries where households are even wealthier than theirs. So the study deserves some scrutiny. Read more of this post

Cyprus Can Save Itself by Fleeing the Euro

Cypriots sitting in the cafes here on Nicosia’s Ledra Street are asking one another if there isn’t an alternative to their island’s bailout.

It has been just weeks since the series of rollercoaster negotiations that produced a deal to support Cyprus, in the process devastating its banks and economic prospects. After the initial shock, the reality of the agreement’s implications is sinking in.

The answer to their question is that there may be another way: Leaving the euro would be a better option for Cyprus if — and only if — it can secure cooperation from its troika of creditors: the International Monetary Fund, the European Commission and the European Central Bank. Read more of this post

More Risk From Portugal

The euro area has had a rough few weeks: Cyprus agreed a bailout program that will decimate its economy, Italy’s Pier Luigi Bersani, the Democratic Party leader, failed to put together a government, borrowing costs for businesses in the peripheral countries continue to rise, unemployment reached record highs, and purchasing manager indices across the region greatly underperformed expectations.

There may be one more piece of bad news to add to the pile before the week is out: Portugal’s budget for 2013 may fall apart, and with it the Portuguese government. Read more of this post


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