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"

Is the BRICS Contingent Reserve Arrangement a Substitute for the IMF?

by Benn Steil and Dinah Walker
BRICS CRA vs IMF borrowing

Russian President Vladimir Putin has hailed the new BRICS contingent reserve arrangement (CRA) as a substitute for the IMF, saying that it “creates the foundation for an effective protection of our national economies from a crisis in financial markets.” But does it? Read more »

Mr. Draghi, Tear Down These Rates!

by Benn Steil and Dinah Walker
euro area real and nominal lending rates

ECB President Mario Draghi was able to stabilize Eurozone nominal lending rates, which had been climbing dangerously in the periphery countries, with his famous do “whatever it takes” speech in July 2012.  Real (inflation-adjusted) lending rates for nonfinancial businesses, however, have risen steadily since then; in Spain, they are back up to their 2009 euro-era peak, as the right-hand figure in today’s Geo-Graphic shows. Read more »

Ukraine, Greece, and the IMF: Déjà vu All Over Again?

by Benn Steil and Dinah Walker
IMF programs Ukraine and Greece

The IMF approved a $17 billion 24-month stand-by lending arrangement with Ukraine at the end of April.  The Fund sees the Ukrainian economy contracting 5% this year, but is enormously confident that its program will quickly set things right, projecting 2% growth next year and 4%+ growth in subsequent years. Read more »

China’s RMB Fairly Valued, Euro Overvalued, According to Our Geo-Graphics iPad mini Index

by Benn Steil and Dinah Walker

The “law of one price” holds that identical goods should trade for the same price in an efficient market. To what extent does it hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s burgers 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. Yet it travels badly—cross-border flows of burgers won’t align their prices internationally. Read more »

French Banks Play Russian Roulette

by Benn Steil and Dinah Walker
bank exposure to russia

In the fourth quarter of last year, with tensions rising between Russia and the West over Ukraine, U.S., German, UK, and Swedish banks aggressively dialed down their credit exposures in Russia.  But as the graphic above shows, French banks, which have by far the highest exposures to Russia, barely touched theirs.  At $50 billion, this exposure is not far off the $70 billion exposure they had to Greece in 2010.  At that time, they took advantage of the European Central Bank’s generous Securities Market Programme (SMP) to fob off Greek bonds, effectively mutualizing their Greek exposures across the Eurozone.  No such program will be available for Russian debt.  And much of France’s Russia exposure is illiquid, such as Société Générale’s ownership of Rosbank, Russia’s 9th largest bank by asset value ($22 billion).  With the Obama Administration and the European Union threatening to dial up sanctions on Russia, is it time for U.S. money market funds and others to start worrying about their French bank exposures? Read more »

Should the ECB Go on a Bund Buying Spree?

by Benn Steil and Dinah Walker
bund buying

Should the European Central Bank finally join the Fed, the Bank of England, and the Bank of Japan and deliver a good, stiff dose of Quantitative Easing?

Maybe, came the surprise response from the hawkish Bundesbank president on March 25.  But “any private or public assets that we might buy,” Jens Weidmann warned, “would have to meet certain quality standards.” Read more »

IMF Reform and Ukraine: Amateur Hour for U.S. Economic Diplomacy

by Benn Steil and Dinah Walker
ukraine imf reform

In our March 5 post, we argued that the Obama administration linking Ukraine aid to IMF reform was disingenuous and counterproductive.  We were right: the legislation failed, congressional Republicans were angered, foreign governments were annoyed, and aid was delayed.  All for what?  Without IMF reform, Ukraine will still get every penny it would have gotten with IMF reform.  Today’s Geo-Graphic shows this.  And more… Read more »

Lew Does Not Need IMF Reform to Aid Ukraine

by Benn Steil and Dinah Walker
Ukraine IMF

The new provisional government in Ukraine is seeking $15 billion in assistance from the International Monetary Fund.  This would represent 700% of the country’s quota with the Fund, added on top of the loans it has already outstanding, amounting to 214% of its quota. Read more »

Was Ukraine Tapered?

by Benn Steil and Dinah Walker
ukraine

For Ukraine’s beleaguered bond market, the seminal event of 2013 was Ben Bernanke’s now-famous taper talk of May 22.  As today’s Geo-Graphic shows, it sent yields soaring to levels they never came back from.

Ukraine was uniquely susceptible to taperitis, having been sporting a current account deficit of 8% of GDP—considerably worse than other big victims such as India, Brazil, Indonesia, Turkey, and South Africa.  Its current political crisis clearly has deep roots, yet it is interesting to speculate as to whether Yanukovych could have held on had it not been for the country’s spiraling debt costs—sent spiraling by the Fed last May. Read more »

“The Euro Crisis Is Dead! Long Live the Euro Crisis!”

by Benn Steil and Dinah Walker
spanish spreads

You’ve got to hand it to Mario Draghi.  Never in the history of central banking has one man accomplished so much with so few words and even less action.

Since having announced the creation of the Outright Monetary Transaction (OMT) program in August 2012, Draghi has had the pleasure of sitting back and watching yield spreads between Spanish and German government bonds fall relentlessly without having to buy a single bond.  Italian spreads have done the same. Read more »