BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Economy

Commission barks up the wrong tree

Posted on May 31, 2012

Just like a teacher with her less disciplined pupils, the European Commission has handed out its reports to the 12 EU countries it believes are guilty of macroeconomic imbalances. These documents – which will be discussed at the next European Council – include recommendations that, if not acted upon, could lead to the imposition of financial sanctions.

In principle, the decision to look at indicators that go beyond the fiscal position of the individual member states is welcome. The crisis was a product of private as well as public sector imbalances and it is only by recognising the importance of both that the eurozone can hope to find a way out of the woods.

    But in spite of this encouraging step, the commission has failed to show it fully understands that imbalances are a two-way problem. Too large current account surpluses are as damaging as excessive deficits. And yet, when the commission chose which countries to single out for further analysis, it used criteria that are skewed against the countries in deficit.

    As a result, for all the impressive paperwork produced, the reports say little about one of the eurozone’s main problems: Germany’s large current account surplus. This was – some would say unsurprisingly – just below the 6 per cent limit that is considered worthy of attention.

    Having ignored the real elephant in the room, the commission could then concentrate on Brussels’ all-time favourite – the fiscal state of individual countries. But even here, the analysis presented is not fully convincing.

    Take the case of France. The commission seems determined to enforce the deficit target agreed for 2013. But this is barking up the wrong tree. France’s priority should be to draw a medium-term plan of fiscal consolidation and structural reforms, not to rush through a set of immediate austerity measures that risk choking off its already struggling economy.

    To be fair, Olli Rehn, the EU’s economic affairs commissioner, opened the door to an extension of the 2013 deficit target for Spain, provided it presents a credible plan of fiscal consolidation. But while politically and economically wise, this move was somewhat overdue.

    The message the commission is sending about Spain shows it can be sensible when assessing the problems of the eurozone. But until it is willing at least to identify all of the currency bloc’s problems, it will do little to help to find a meaningful and long-lasting solution to the crisis.