Benn Steil


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

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Greece Fallout: Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks

by Benn Steil and Dinah Walker
Greece France Spain and Italy

In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece.  French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain. Read more »

Greece and Its Creditors Should Do a Guns-For-Pensions Deal

by Benn Steil and Dinah Walker
Greece NATO Defense Spending

IMF Chief Economist Olivier Blanchard has said that Greece needs to slash pension spending by 1% of GDP in order to reach its new budget targets.  The Greek government continues to resist, arguing that Greeks dependent on pensions have already suffered enough.  But it has yet to put a compelling alternative to its creditors. Read more »

Greece-Troika Gap Over Primary Surpluses Has Shrunk Dramatically

by Benn Steil and Dinah Walker
Greece Primary Surplus IMF Troika

Greece has announced that it will not pay the IMF the €300 million due to the Fund on June 5.  Instead, it will “bundle” the payments due to the Fund over the course of June into one payment of about €1.7 billion that it will make at the end of the month.  This contradicts earlier pledges that it would not resort to bundling.  The only country ever to have done so is Zambia, three decades ago. Read more »

Move Over Big Mac: The Law of One Price Is Lovin’ Our Little Mac 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 »

The Politics of IMF Crisis-Country Growth Projections

by Benn Steil and Dinah Walker
IMF growth projections vs reality Greece and Ukraine

IMF GDP growth “projections” accompanying emergency lending programs are nothing of the sort; they are targets the level of which is necessarily set high enough to enable the interventions.

Take Greece.  After committing to lending of €30 billion over 3 years in 2010, the Fund projected that the crisis-mired nation would return to growth by 2012.  As shown in the left figure above, Greece’s economy actually plunged by 7% that year – the year it completed the world’s largest sovereign restructuring, covering €206 billion of bonds. Read more »

Bank Valuations Tank as ECB Flubs Its Stress Test

by Benn Steil and Dinah Walker
european bank valuations before and after stress test

Low market valuations (i.e., price to book ratios) for euro area banks reflect market concerns over their capital cushions, opined the Bank of England just prior to last-year’s launch of the ECB stress tests—the long-awaited results of which were published on October 26.  The tests, “by improving transparency,” said the BoE, have “the potential to improve confidence in euro area banks.” Read more »

The ECB Fails to Stress Banks Over the One Critical Variable It Controls: Inflation

by Benn Steil and Dinah Walker
ECB Stress Tests Inflation Scenario

Relentlessly falling inflation is bad news for Eurozone banks.  It increases the real (inflation-adjusted) value of borrower debt and the real cost of servicing that debt.  It causes loan defaults, and therefore bank loan losses, to rise.

So with Eurozone inflation, currently at a near-record low of 0.4%, clearly at risk of heading into deflationary territory, what did the ECB say was the “adverse scenario” for this year?  Inflation of 1% – more than twice its current level.  This is indefensible; the ECB’s dire scenario for this year is actually much cheerier than the IMF’s baseline forecast, which pegs inflation at 0.5%.  The country-by-country comparison is shown in the graphic above. Read more »