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"

Will Portugal Bring Down the Spanish Banking Sector?

by Benn Steil and Dinah Walker
spain exposure to portugal

In its recent evaluation of the Greek bailout program, the IMF revealed that the euro area leadership sought to delay a Greek sovereign debt restructuring back in 2010 because of contagion fears; that is, Greece’s creditors might get sucked into the bailout vortex. Among eurozone national banking systems, France had the largest exposure. At its peak in the second quarter of 2008, France’s exposure to Greece totaled $86 billion. That exposure has since plummeted, partly because French banks took advantage of the ECB’s Securities Market Programme (SMP) during 2010-11 to fob off Greek bonds, effectively forcing a eurozone mutualization of the debt. SMP was terminated in September 2012. Read more »

The New Geo-Graphics iPad Mini Index Should Calm Talk of Currency Wars

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 McDonalds’ 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 »

Eric Rauchway Battles “The Battle of Bretton Woods”

by Benn Steil and Dinah Walker
Don Quixote, courtesy of the Biblioteca de la Facultad de Derecho y Ciencias del Trabajo Universidad de Sevilla. Don Quixote, courtesy of the Biblioteca de la Facultad de Derecho y Ciencias del Trabajo Universidad de Sevilla.

Benn’s new book The Battle of Bretton Woods has been called “the gold standard on its topic” by the New York Times, “a triumph of economic and diplomatic history” by the Financial Times, and “a superb history” by the Wall Street Journal.  But Eric Rauchway is having none of it.  He’s dinged the book twice now, its only two negative reviews—first for the IMF’s Finance & Development and then, in an extended dance remix version, for the TLS. Read more »

Draghi’s Dilemma

by Benn Steil and Dinah Walker
ecb rate vs national rates and inflation

The Governing Council of the European Central Bank meets on May 2, with a possible rate cut in the offing. Yet a rate cut is not the no-brainer the Bank’s critics often suggest, as today’s Geo-Graphic shows.

The ECB’s official inflation-rate target is “below, but close to, 2%.” Both Portugal and Greece have inflation under 1% , but the transmission mechanism from ECB rates to business borrowing rates in those two countries has been virtually severed by the crisis. In short, they need a rate cut, but the ECB can’t deliver them one. Read more »

Beware Friendly Fire in the Currency Wars

by Benn Steil and Dinah Walker
imports and inflation

Prominent economic commentators have argued the cases for significantly weaker currencies in each of the world’s major economies – in particular, the United States, the eurozone, Japan, and the UK. As these four economies represent over half of the global economy, it’s clear that they can’t all accomplish this feat. It’s also far from clear that they should all want to. Read more »

Why Easy Money Is Not Enough: U.S. vs. the Eurozone

by Benn Steil and Dinah Walker
unemployment dispersion

European Central Bank president Mario Draghi has promised to do “whatever it takes to preserve the euro,” and the bank’s Outright Monetary Transactions initiative last September, aimed at pulling down crisis-country bond rates, no doubt calmed market fears of a eurozone breakup. But whereas eurozone sovereign bond spreads have narrowed, the gap in real economic performance – particularly unemployment – between the best and worst performers, as shown in today’s Geo-Graphic, has continued to grow precipitously. Compare this to the United States, which has a fiscal and banking union as well as a monetary one. There, jumps in unemployment rate dispersion across states caused by financial and other shocks are reversed in relatively short order. Read more »

Should the United States Be the Military Lender of Last Resort?

by Benn Steil and Dinah Walker
mali

In 2011, then Secretary of Defense Robert Gates warned that “there will be dwindling appetite and patience in the U.S. . . . to expend increasingly precious funds on behalf of nations that are apparently unwilling to devote the necessary resources to be serious and capable partners in their own defense.” France in Mali is now a case in point; the Obama administration is providing only grudging assistance to an under-resourced French intervention.  As the small upper right figure in today’s Geo-Graphic shows, France has very little of the vehicular equipment necessary to prosecute the Mali operation—less than 5% of what the U.S. has in stock. Read more »

A GDP-Based IMF Would Boost China’s Voice . . . and America’s

by Benn Steil and Dinah Walker
reallocation

Since its creation after the 1944 Bretton Woods conference, membership of the International Monetary Fund (IMF) has grown from 29 countries to 188.  Representation, in terms of votes and quotas, has also become less connected with the relative weights of each country in the global economy.  As today’s Geo-Graphic shows, China would be by far the biggest beneficiary of an IMF voting reallocation based purely on gross domestic product, gaining eight percentage points.  What is much less well known, however, is that the United States would be the second biggest beneficiary, well above third-place Japan and fourth-place Brazil.  As the United States already has enough votes to wield unique veto power, this would have little practical effect on its already enormous influence.  But it does explain why the United States has been consistently more aligned with the so-called BRIC developing nations on IMF reform than with its fellow rich nations in Europe. Read more »

Should the Fed Follow the Bank of England and Subsidize Bank Lending?

by Benn Steil and Dinah Walker
us and uk lending capitalization corrected

Last week’s Bank of England (BoE) poll of UK lenders turned up some good news: credit “availability” for both households and companies is on the rise – as we document in the upper right figure of today’s Geo-Graphic.  The Old Lady of Threadneedle Street was quick to take credit for the credit: “Lenders noted,” crowed the BoE, “that the Funding for Lending Scheme,” through which the BoE and UK Treasury have since August provided banks with cheap funds to boost their lending, “had been an important factor behind this increase.” Read more »

Greece Hurtles Toward Its Fiscal Cliff

by Benn Steil and Dinah Walker
image

The United States marches solemnly towards its fiscal cliff, awaiting only the command from the Goddess of Reason to halt. Unfortunately for Greece, that country plugged its ears back in March.

Like the United States, Greece made prior commitments on spending and taxation in order to bind itself to the mission of deficit reduction. Unlike the United States, Greece left itself little means to unbind itself. As shown in the graphic above, its massive debt restructuring in March only reduced its debt-to-GDP ratio from 170% to 150%, but in the process made further significant restructuring much more difficult. Read more »