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"

“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 »

Beware of Greeks Bearing Primary Budget Surpluses

by Benn Steil and Dinah Walker
primary balance and default

Things are looking up in Greece – that’s what Greek ministers have been telling the world of late, pointing to the substantial and rapidly improving primary budget surplus the country is generating.  Yet the country’s creditors should beware of Greeks bearing surpluses. Read more »

ECB Rate Cut a No-Brainer; Also, for Many, a No-Gainer

by Benn Steil and Dinah Walker
inflation and correlation

Back in April, we showed that the eurozone countries most in need of lower corporate borrowing rates benefited only marginally from ECB rate cuts. Today’s Geo-Graphic shows that little has changed in this regard; the financial crisis has clearly done serious and lasting damage to the monetary transmission mechanism in Europe – particularly as it affects Greece, Portugal, Spain, and Italy. Read more »

Paul Krugman’s Baltic Bust—Part III

by Benn Steil and Dinah Walker
Does Paul Krugman Still Believe in “Icelandic Miracles”?Photo Courtesy of Daniel Williams Does Paul Krugman Still Believe in “Icelandic Miracles”?
Photo Courtesy of Daniel Williams

Geo-Graphics posts in July 2010 and 2012 showed that Paul Krugman’s devaluation-driven “Icelandic Miracle” was nothing of the sort – a figment of his having chosen the most favorable possible starting date (Q4 2007) for his Baltic (and Irish) economic-performance comparisons.  Move it forward or back, and Krugman’s story collapses like a warming arctic ice shelf. Read more »

From Greek Spreads to German Votes to . . . Greek Spreads?

by Benn Steil and Dinah Walker
Greece and Germany

The German federal elections on September 22 could be of enormous consequence for Greek solvency – and the future of the eurozone.  Today’s Geo-Graphic shows that Greek solvency may itself be of great consequence to the German elections.

As the figure shows, when the yield spread between German and Greek government bonds falls (and market optimism for Greek solvency rises), support for the small right-of-center, free-market German FDP party rises.  (The FDP is currently part of the Merkel-headed, CDU-led government.)   When that spread rises, however, support for the FDP falls, while support for the left-of-center SPD party rises.  (Support for Merkel’s CDU is invariant to shifts in Greek sentiment.) Read more »

Carney’s Forward Garble

by Benn Steil and Dinah Walker
unemployment targets

The Bank of England’s dramatic new “forward guidance” policy, announced on August 7 with great fanfare, struck the markets like a soggy noodle – the FTSE fell, gilts fell, and sterling rose, none of which could the Bank have wanted to see.

Why the disappointment?  Others have pointed to the multiple caveats and exit clauses, but we would highlight something much more tangible: the pledge to keep interest rates super-low at least until unemployment fell to 7% was meaningless, as 7% is nearly two full percentage points over what the Bank considers to be the long-term equilibrium rate of UK unemployment.  This is like a football coach pledging to keep throwing the football until his team is down by less than 50 points; it tells the defense nothing it didn’t already know. Read more »

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 »