Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Euro Zone"

Three Central Banks

by Robert Kahn

Today’s central bank news tells us a lot about the risks and rewards of proactive central banking.

The Bank of Japan (BoJ) surprised me (and nearly everyone else ) with a dramatic expansion of its unconventional monetary policy this morning, citing renewed risks of deflation. The BOJ announced (i) an increase in the target for monetary base growth to ¥80 trillion ($730 billion) per annum from ¥60–70 trillion; (2) an increase in its Japanese government bond (JGB) purchases to an annual pace of ¥80 trillion from ¥50 trillion; (3) an extension of the average maturity of its JGB purchases to 7–10 years (3 years previously); and (4) a tripling of its targets for the annual purchases of Japan real estate investment trusts (J-REITs) and exchange-traded funds (ETFs).

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European Banks: Balance Sheet Clarity But A Cloudy Future

by Robert Kahn

The European banking assessment results, released yesterday, were generally well received by markets. The test looked like earlier U.S. and Spanish stress tests in terms of structure, the results were in line with market expectations, and the report provided enough detail to keep analysts busy for weeks. This morning, the euro is firmer and European stocks were up a bit before weak data clawed them back.  Will this test succeed where previous efforts have failed and ultimately restore confidence in European banks? I suspect that your answer to this question depends on your outlook for the European economy. Without growth, Europe remains over-indebted, its banks undercapitalized, and a crisis return looks likely.

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When meetings matter—The World Bank and IMF Convene

by Robert Kahn

There are many reasons cited for this week’s market turndown and risk pullback, including concerns about global growth, Ebola, turmoil in the Middle East, and excessive investor comfort from easy money. What has been less commented on is the role played by last weekend’s IMF and World Bank Annual Meetings. Sometimes these meetings pass uneventfully, but sometimes bringing so many people together—policymakers and market people—creates a conversation that moves the consensus and as a result moves markets. It seems this year’s was one of those occasions. As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers—particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with it.

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The Geopolitical Paradox: Dangerous World, Resilient Markets

by Robert Kahn

Should we be worried by how well global markets are performing despite rising geopolitical volatility? I think so. In my September monthly, I look at the main arguments explaining the disconnect, and argue Europe is the region we should be most worried about a disruptive correction. Here are a few excerpts.

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EU Sanctions Rules Released

by Robert Kahn

The rules for implementing new EU sanctions against Russia have been released (see also here and here).  On quick glance, they are, as advertised, an important step that will have systemic effects in financial, energy and defense markets. In this respect, they are “sectoral” or “level three” sanctions in the language of policymakers.  While narrow in scope– the financial ban (Article V) is on new transferable securities of majority state-owned Russian banks with maturities greater than 90 days–one is left with the impression that Europe, like the United States, stands ready to extend the sanctions if there is evasion or further Russian efforts to destabilize Ukraine.

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Europe’s December Surprise?

by Robert Kahn
European Central Bank (ECB) president Mario Draghi speaks during the monthly ECB conference in Frankfurt on July 4, 2013. \ Courtesy Reuters European Central Bank (ECB) president Mario Draghi speaks during the monthly ECB conference in Frankfurt on July 4, 2013. \ Courtesy Reuters

Over the past year, Europe has enjoyed calm financial markets.  At the core of the market’s comfort were two assumptions about policy. First, that the European governments would do just enough to keep the process of European integration moving forward. Second, that the ECB would, in the words of Mario Draghi, do “whatever it takes”  to save the euro. The centerpiece of the ECB’s subsequent efforts was expanded liquidity (through long-term repurchase operations and easier collateral requirements for banks to access ECB liquidity) and a commitment to purchase government bonds to support countries return to market (the OMT program).  Even many pessimists who fear that Europe is trapped on a unsustainable, low-growth trajectory remain optimistic that Europe will do what it takes to navigate the near term risks.  It may be time to question that optimism.

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The IMF’s Outlook: Less Growth, Inadequate Policies

by Robert Kahn
Courtesy Reuters Courtesy Reuters

The IMF is out with a global update and a statement on Europe.  Unsurprisingly, it has revised its outlook down (again).  It still, optimistically, expects a return to growth in Europe next year, but it recognizes the risks are on the downside.  A few points to highlight.

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Greece and the Troika: Summer Break

by Robert Kahn
Courtesy Reuters Courtesy Reuters

The Greek government has reached agreement with the Troika (European Central Bank, European Commission, and IMF) on a set of policies putting its program back on track and opening the door for €8.1 billion in tranches over the summer, which should finance the government until September.  To get this done involves moving forward lending originally scheduled for later years.  That means a large financing gap looms for 2014.  But that’s an issue for after the summer break.

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Portugal: The Price of Austerity

by Robert Kahn
Portugal's Finance Minister Maria Luis de Albuquerque during her swearing-in ceremony at the Belem palace in Lisbon July 2, 2013 \ Courtesy Retuers. Portugal's Finance Minister Maria Luis de Albuquerque during her swearing-in ceremony at the Belem palace in Lisbon July 2, 2013 \ Courtesy Retuers.

News of the collapse of the Portuguese coalition government is further evidence of adjustment fatigue in the periphery that threatens the European project.  The leader of the junior coalition partner CDS-PP resigned yesterday, complaining that the new Finance Minister (Maria Luís Albuquerque, replacing Vítor Gaspar who resigned Monday) represented a “mere continuity” of failed austerity policies.  While it’s possible the government may survive as a minority party, the odds are rising that there will be early elections this fall, a vote that is set to become a referendum on austerity.  It is both an opportunity and a serious challenge for Europe.

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