Benn Steil


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

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Showing posts for "Financial Crisis and Recession"

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 »

As Fed Pulls Back, the ECB and BoJ Add Trillions to Global Liquidity

by Benn Steil and Emma Smith
global liquidity - updated

All eyes and ears are on the Fed as it ponders its first rate increase in nine years.  IMF Managing Director Christine Lagarde fears a rerun of the 2013 “taper tantrum,” or what we have been calling a rate ruckus. Emerging markets are clearly vulnerable to renewed outflows, as capital chases higher yields in the U.S. and drives up the cost of dollar funding abroad. Read more »

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 »

Are Fed Watchers Watching the Wrong People?

by Benn Steil and Dinah Walker
Fed Board FOMC IoER Fed Funds

One effect of the financial crisis was to change how the Fed conducts monetary policy.  This could be long-lasting and important.

Prior to the crisis, the Federal Open Market Committee (FOMC) set a target for the so-called federal funds rate, the interest rate at which depository institutions lend balances to each other overnight.  The New York Fed would then conduct open market operations – buying and selling securities – in order to nudge that rate towards the target.  It did this by affecting the supply of banks’ reserve balances at the Fed, which go up when they sell securities to the Fed and down when they buy them. Read more »

Will China Bail Out Russia?

by Benn Steil and Dinah Walker
Russia's International Borrowing Options

Russia’s foreign exchange reserves have fallen by nearly 1/3 since October 2013; they’ve fallen 20% just since September 2014.  Whereas the country still has over $300 billion in reserves, about $150 billion of this may be illiquid; it also has close to $700 billion in external debt. Read more »