Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading

Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading

Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Economy

Euro motor firing on one engine


Posted on May 31, 2013

It is widely felt that the EU’s fabled Franco-German motor has recently been firing on one engine only. Chancellor Angela Merkel’s visit to Paris was an effort to show that the partnership is still vigorous. But the “contribution paper” to Europe’s policy debate that she offered jointly with François Hollande, France’s president, remains very much made in Berlin.

Given how fast the eurozone can realistically be expected to move, there is much to like about the policy proposals. First, both countries commit to finishing the basic design of banking union by June. That is a good sign after too much foot-dragging. Berlin is keeping a firm grip on the purse strings – the paper proposes that bank resolutions be funded through prepaid industry levies collected by national funds. But importantly, the door is left open to direct recapitalisation by the eurozone’s rescue fund, an idea Berlin has previously poured cold water on.

    Second is the serious attention paid to the need for eurozone economies to converge. The tool of choice is a German idea of having governments sign legally binding contracts with the European Commission. What good this will do depends, of course, on what the contracts stipulate. A monetary union does not just need the recent moderation in the push for universal austerity. True fiscal co-ordination must do more. When some countries have to cut deficits, others with more leeway should widen them to pick up the slack in demand. And reforms to narrow productivity gaps are more urgent than, and made harder by, fiscal consolidation.

    Third, the two leaders call for ambitious changes to how the eurozone is governed from its current status as an intergovernmental club. They envisage a permanent president of the eurogroup of finance ministers and regular summits. They also want the European Parliament to establish new eurozone-only structures to give democratic legitimacy to the bloc. This would further the institutionalisation of a two-tier EU.

    Politically, this is a German document, couched in language palatable to the French – such as due respect to national differences. That reflects the two countries’ strengths and weaknesses. Eurozone policy now pivots around Berlin, but Germany’s voice will be heard with more sympathy if it has Paris on board. France clings to the Franco-German axis as the one thing that stops domestic stagnation turning into external irrelevance. But the further Paris falls behind other countries’ efforts to reform, the less attractive a partner for Berlin it will be.

    The direction of travel is clear. Berlin offers to share its resources – if Europe will agree to pool more sovereignty. Whether that goal is reached depends on how equal a partner Paris manages to be.