Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Euro’

The ECB’s lack of credibility could hamstring Europe’s recovery

Posted by hkarner - 19. September 2020

Date: 17‑09‑2020

Source: The Economist

A strong currency is both cause and consequence of the ECB’s failures

At points in the past decade the European Central Bank (ecb) was the only institution standing between the euro zone and financial oblivion. Europe’s problem was budgetary inhibition and insufficient risk‑sharing. Monetary policymakers were the only game in town. No longer. Earlier this year the European Union agreed to issue joint debt to fund a fiscal response to the pandemic, sending confidence in the currency union surging. Now the most pressing problem in euro‑zone economic policy stems from Frankfurt. It is that hardly anyone believes the ecb is serious about hitting its inflation target of “below, but close to, 2%”.

Covid‑19 continues to leave most of the world with a 90% economy in which activity is depressed. Disinflation is the natural consequence. In August euro‑zone prices fell for the first time in four years. But it is the job of policymakers to ensure that shocks do not become prolonged disinflationary slumps. The ecb’s own forecasts, released after its monetary‑policy meeting on September 10th, show that it is failing. Inflation will rise over the next three years—but only to 1.3%. Financial markets expect it will stay around that level for most of the next decade. Professional forecasters are only a little more optimistic. The latest force holding down prices is a strong euro. The single currency has appreciated by 5.4% against the dollar this year. Den Rest des Beitrags lesen »

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The High Cost of a Strong Euro

Posted by hkarner - 9. August 2020

Given their strong performance during the COVID-19 crisis, and their US counterparts‘ ongoing debacle, European leaders who have been pushing for a stronger global role for the euro may be about to get their wish. But it may not be long before they regret it.

BRUSSELS – Europe is experiencing a “good” crisis. Despite the damage wrought by the COVID-19 pandemic and ensuing recession, its response has minimized the damage and bolstered confidence in the economy. Yet even this positive news carries risks.

The European Union has done a much better job of curbing COVID-19 infections and fatalities than, say, the United States. Moreover, its economic-policy response has been much better than expected, with all member states taking strong action to entice firms not to lay off workers. As a result, unemployment has barely risen.If the EU’s economic recovery is as strong as currently seems likely, it should be easy for firms to restart production with the same workforce they had before the crisis. Den Rest des Beitrags lesen »

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The Swedish Economic Model

Posted by hkarner - 8. August 2020

Date: 06‑08‑2020

Source: The Wall Street Journal By The Editorial Board

Stockholm strikes a different balance between virus and GDP.

Progressive politicians love to wish that America’s economy could be more like Sweden’s. After Wednesday’s economic‑data release there, we share the dream, albeit for different reasons.

The Nordic country suffered an 8.6% decline in GDP from April to June, which sounds bad until you remember the eurozone economy contracted 12.1% in the same span with some European countries doing much worse. The U.S. economy shrank nearly 10%, or 33% on an annual basis.

Sweden fared better because, unlike the rest of Western Europe or much of the U.S., Stockholm hasn’t imposed a total lockdown in response to the coronavirus. Schools, shops and restaurants remained open through the spring. The economic decline results partly from a fall in trade as other countries shut down and partly because Swedes took individual responsibility for moderate social distancing, as their government asked, in lieu of a lockdown. Den Rest des Beitrags lesen »

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The Euro Crisis’s New Clothes

Posted by hkarner - 27. Juli 2020

Date: 24‑07‑2020

Source: Project Syndicate by Hans‑Werner Sinn

Hans‑Werner Sinn, Professor of Economics at the University of Munich, was President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs. 

The European Union’s new €750 billion recovery fund is intended to tackle crises such as collapsing manufacturing output in southern member states like Spain and Italy. But money cannot solve the problem of distorted relative goods prices within the eurozone.

MUNICH – European Union leaders have reached agreement on a big €750 billion ($870 billion) recovery fund intended to help the EU member states hit hardest by COVID‑19. But during the lengthy negotiations over the package, it became increasingly clear that Europe’s pandemic‑induced economic crisis is an extension of the euro crisis that has been festering since the collapse of Lehman Brothers in 2008.

In essence, this is a competitiveness crisis brought about by the distortion of relative prices within the eurozone, which is a result of inflationary overpricing in Southern European countries. This overpricing, in turn, stemmed from the flood of capital that entered these economies after they joined the euro. Den Rest des Beitrags lesen »

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The pandemic revives ultra‑safe European bonds

Posted by hkarner - 13. Juli 2020

Date: 09‑07‑2020

Source: The Economist

The European Commission could soon become a big player in capital markets

The euro zone has not been a hospitable place for investors seeking safety in recent years. The currency area’s pool of super‑safe, aaa‑rated sovereign securities shrank by 40% between 2007 and 2018. Rating agencies downgraded some of its members during the debt crisis of 2010‑12. Two of its remaining top‑rated issuers—Germany and the Netherlands—have energetically hacked away at their debt piles.

The pandemic might help alleviate the shortage. Germany, once fixated on its “black zero”, or balanced budget, will go deeply into the red. It may run a fiscal deficit of as much as 7.5% of gdp this year, reckons the Bundesbank. A raft of issuance may also come from an unusual source: the European Commission. If plans for it to finance the eu’s recovery spending go ahead, it could become a big influence in global capital markets.

The commission already issues a modest amount of bonds on behalf of the European Union, which it mostly lends on to member states. Its debt stock amounts to €52bn ($59bn, or 0.4% of eu gdp in 2019). Plans to fund the recovery from the pandemic will take this much higher. From September it will raise €100bn, which it will in turn lend to countries in order to finance temporary‑employment schemes. Den Rest des Beitrags lesen »

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Bulgaria and Croatia Take Vital Step Toward Adopting Euro

Posted by hkarner - 12. Juli 2020

Date: 12‑07‑2020

Source: The Wall Street Journal

EU finance ministers agreed to accept the two Eastern European nations into the region’s exchange‑rate mechanism

FRANKFURT—Bulgaria and Croatia took a big step toward adopting the euro currency, potentially becoming the newest members to the bloc after years of economic crises and shocks.

European Union finance ministers agreed to accept the two Eastern European nations into the region’s exchange‑rate mechanism, a waiting room for joining the common currency area, the European Central Bank said in a statement Friday.

The move means that Bulgaria and Croatia could become the bloc’s 20th and 21st members as soon as 2023, provided they meet other economic and regulatory criteria.

In particular, they need to keep their currency trading in a narrow band vis‑à‑vis the euro for at least two years. Den Rest des Beitrags lesen »

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Posted by hkarner - 15. Juni 2020

Date: 13‑06‑2020

Source: DER SPIEGEL Interview Conducted by Tim Bartz

Subject: Interview with Economist Nouriel Roubini

„The Stock Market Is Deluding Itself“

Prominent American economist Nouriel Roubini does not believe the global economy will recover quickly. He believes that the dire situation will produce a summer of protest in the U.S. and years of difficulties in Europe as well.

DER SPIEGEL: Mr. Roubini, the pandemic has brought the global economy to its knees, and millions of people have lost their jobs. Is the crisis as severe as the Great Depression of the 1930s?

Roubini: The crash is even greater than it was then. It took years from 1929 until the full extent of the crisis became visible. Compared to today, it was like a slow‑motion train wreck. Now the world economy has collapsed within weeks, and in the U.S. alone, more than 40 million people are unemployed. Many believe that the economy will pick up again just as quickly, but that is a fallacy.

DER SPIEGEL: You don’t believe in a V‑shaped recovery despite the huge economic stimulus packages? After all, 2.5 million new jobs were created again in the U.S. in May.

Roubini: Of course, we will see an upswing in the second half of the year. But it will not be a real one, but a delusion. The economy has fallen so steeply that it is practically inevitable that it will pick up again at some point. But that won’t compensate for the crash in any way. Even at the end of 2021, the U.S. economy will still be below the level of early 2020; too much has broken down. And the unemployment rate will level off at 16 or 17 percent ‑ during the financial crisis it was only 10 percent. The job creation in May was only 2.4 million after 42 million lost their jobs in the last few months. And the actual unemployment rate is much higher than officially measured. Den Rest des Beitrags lesen »

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The EU Should Issue Perpetual Bonds

Posted by hkarner - 21. April 2020

Date: 20‑04‑2020

Source: Project Syndicate by George Soros

George Soros is Chairman of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge‑fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019). 

The disruption in the European Union caused by the COVID‑19 pandemic should be temporary, but only if EU leaders take the extraordinary measures needed to avoid long‑term damage. Fortunately, there is an easy, fast and low‑cost way to finance the proposed €1 trillion European Recovery Fund.

NEW YORK – European Commission President Ursula von der Leyen has announced that Europe will need about €1 trillion ($1.1 trillion) to fight the COVID‑19 pandemic. This money could be used to establish a European Recovery Fund. But where will the money come from? 

I propose that the European Union should raise the money needed for the Recovery Fund by selling “perpetual bonds,” on which the principal does not have to be repaid (although they can be repurchased or redeemed at the issuer’s discretion). Authorizing this issue should be the first priority for the forthcoming European Council summit on April 23. Den Rest des Beitrags lesen »

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Will Eurozone Policymakers Take the Long View?

Posted by hkarner - 8. Januar 2020

Daniel Gros is Director of the Centre for European Policy Studies.

The 2010s were an exceptional decade that called for unprecedented economic policies. Now, however, the eurozone’s fiscal and monetary policymakers must think more long-term and accept that continued stimulus measures are unlikely to offset the effects of Europe’s demographic decline.

BRUSSELS – The beginning of a new year, and the start of a new decade, is a good time for longer-term reflection on economic policy. In the 2010s, a decade dominated by the aftermath of a once-in-a-lifetime financial crisis, a strong monetary and fiscal stimulus was clearly justified. In fact, there is now general agreement that large fiscal expansions by governments almost everywhere, followed by unconventional monetary policies, were instrumental in preventing the Great Recession from turning into a repeat of the Great Depression of the 1930s.

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Revisiting the euro’s north-south rift

Posted by hkarner - 9. November 2019

Date: 07-11-2019
Source: The Economist

Income gaps remain, but cross-border flows are more balanced

Since the euro zone was first engulfed by a sovereign-debt crisis a decade ago, northern member states have dished out plenty of strictures. “Greece, but also Spain and Portugal, have to understand that hard work…comes before the siesta,” advised Bild, a German tabloid, in 2015. Two years later, even as the crisis receded, Jeroen Dijsselbloem, then the Dutch finance minister, told southerners: “You cannot spend all the money on drinks and women and then ask for help.”

Northerners’ constant fear of underwriting southern irresponsibility has led politicians from Amsterdam to Helsinki to put the brake on banking reforms and fiscal integration across the zone. It has caused numerous fights over monetary policy, the latest of which is in full swing. On November 1st the European Central Bank (ecb) resumed quantitative easing (qe), the purchase of bonds using newly created money. The decision to do so, made in September, was roundly attacked by newspapers—and even former and current central bankers—in northern countries including Germany and the Netherlands. The complaints reflect savers’ dread of negative interest rates and a suspicion that easing lets indebted southern countries off the hook. Together this can make monetary policy seem like a source of transfers. Den Rest des Beitrags lesen »

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