Benn Steil

Geo-Graphics

A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Showing posts for "Europe"

Italy’s (Not So) Big Bad Bank Bailout

by Benn Steil and Emma Smith
image (latest)

Italy’s recovery from the crisis lags even the rest of laggard Europe. Its economy remains 8 percent smaller than in 2007; among EU members, only Greece and Cyprus have done worse.

Top of the list of challenges it faces is bank balance sheets clogged with €360 billion of bad loans, crowding out new lending. Around €40 billion of additional capital is needed to write down nonperforming assets to something approximating market value. Read more »

The World Economy is Running on Monetary Fumes

by Benn Steil and Emma Smith
Global monetary policy rates

With global growth stalling, the IMF is calling for more assertive policy action to boost it.  In normal times, monetary stimulus is—even for liberal Keynesians like Paul Krugman—sufficient to address deficient demand.  But these are most surely not normal times. Read more »

Has the Fed Become More Accommodative than the ECB and BoJ?

by Benn Steil and Emma Smith
Real vs. Nominal Interest Rates

A Japanese interest-rate strategist recently told the Wall Street Journal that “every day is like being Alice in Wonderland” since the Bank of Japan’s foray into negative deposit rates on January 29. Though the yen initially fell, as the BoJ wanted, it reversed course quickly.  The yen has of late been trading near 18-month highs.  What is going on? Read more »

CoCo Nuts Have Been Hammered, but the Market Is Doing Just Fine

by Benn Steil and Emma Smith
CoCos

Anxiety over whether Deutsche Bank would suspend interest payments on its contingent convertible bonds, otherwise known as CoCos, fueled a February selloff in the $250 billion market – as well as in bank shares broadly.  While Deutsche Bank has insisted that it will have no difficulty making interest payments, yields on CoCo bonds remain well above their levels at the start of the year – as shown in the graphic above. Read more »

Our Mini Mac Index Flame-Broils The Economist—Yet Again

by Benn Steil and Emma Smith
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The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But to what extent does it actually hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

How Low Can Mario Go?

by Benn Steil and Emma Smith
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In September 2014 the European Central Bank lowered its deposit rate to an all-time low of -0.2 percent, after which ECB President Mario Draghi declared that rates were “now at the lower bound.” What he meant by this was that, by the ECB’s calculations, banks would find holding cash more attractive than an ECB deposit at rates below -0.2 percent, so there was no scope for encouraging banks to lend by pushing this rate lower. The ECB therefore turned to asset purchases, whose efficacy is much in debate, in an effort to ease policy further. Read more »

As Fed Pulls Back, the ECB and BoJ Add Trillions to Global Liquidity

by Benn Steil and Emma Smith
global liquidity - updated

All eyes and ears are on the Fed as it ponders its first rate increase in nine years.  IMF Managing Director Christine Lagarde fears a rerun of the 2013 “taper tantrum,” or what we have been calling a rate ruckus. Emerging markets are clearly vulnerable to renewed outflows, as capital chases higher yields in the U.S. and drives up the cost of dollar funding abroad. Read more »