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"

Trump’s NATO Spending Demands Will Spur an EU Deficit Battle

by Benn Steil and Emma Smith

President Trump and Defense Secretary Mattis are putting unprecedented pressure on European NATO members to boost military spending, threatening to reduce America’s support for the alliance if it is not forthcoming.  Whereas the United States spent 3.6 percent of GDP on defense in 2016, its European allies spent a mere 1.3 percent—well below the 2 percent minimum they agreed to in 2006.  Among EU NATO members, only Greece, Estonia, and Poland meet the target. (We’ve left out the UK owing to impending Brexit.) Read more »

Italy’s (Not So) Big Bad Bank Bailout

by Benn Steil and Emma Smith

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

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

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

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

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

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 »