Italy is about to hijack the eurozone

There is still some debate about who came up with the adage that ‘if you owe the bank $100 that is your problem. If you owe the bank $1 million dollars that is their problem’. It is usually attributed to the oil tycoon J. Paul Getty, which may help explain how he became the richest man of his era. Occasionally, and in a slightly modified form, it is attributed to John Maynard Keynes in his advice to the British cabinet after world war two. And yet in truth, it should probably have been coined by an Italian. Why? Because the country now owes so much money to the rest of

A German court has plunged the eurozone into fresh crisis

An epidemic has been raging across the continent. The economy is in lockdown, and GDP is in freefall. But, hey, just when you thought things couldn’t get any worse in the eurozone it now has a financial and currency crisis as well, and one that is being made worse by the week with the shambolic management of the European Central Bank by Christine Lagarde. Today, the German constitutional court has, at least in part, ruled against the ECB’s bond-buying programme, which allows the central bank to print money and effectively bail out Italy, Spain, and probably quite soon France as well. You need to be a German lawyer – not

Sajid Javid has become the doormat Chancellor

Mario Draghi, who retired as president of the European Central Bank this week, was arguably the first holder of that office to win international respect for himself and his institution. The ECB’s founding chief, the downbeat Dutchman Wim Duisenberg, was undermined on all sides but especially by the French — who eventually succeeded in replacing him with their own Jean-Claude Trichet, whom no one remembers for much beyond meddling and posturing and the acquittal from scandal at home that freed him to take up the ECB job in the first place. But former Goldman Sachs executive and Italian central bank governor Draghi wrote himself into history on 26 July 2012,

If Deutsche Bank goes down without a bailout, I really will eat my hat

‘Can anyone seriously imagine the German state and corporate establishment allowing the bank that bears their country’s name to go down?’ I asked in February, adding rather bravely, ‘Of course they won’t.’ And that, I fear, makes my next question, ‘Am I about to eat my hat?’ Shares in Deutsche Bank have plunged to their lowest level since 1992 as the US Department of Justice seeks to impose a $14 billion fine relating to Deutsche’s issuance of mortgage-backed securities before the 2008 crisis, and rumours say Chancellor Angela Merkel has ruled out a state bailout. Deutsche boss John Cryan says the bank hasn’t asked for her help to fight its

In praise of the European Central Bank

During the EU referendum campaign, there was much unfavourable comment (usually justified) about foreign entities or leaders who intervened to try to frighten us into voting Remain. Virtually all did so — Nato, the IMF, the World Bank, President Obama. But one important voice was silent — that of the European Central Bank. Its president, Mario Draghi, confined himself to saying that the ECB was ‘ready for all contingencies’. This was greatly to his credit. I gather that the ECB came under enormous official pressure to join the chorus of anti-Brexit warnings, but refused. It sensibly realised that it had no business instructing British voters, and needed only to be

Time running out for a Greek deal warns Osborne

Right now, Britain is sitting on the side-lines waiting to see if there is, to use George Osborne’s phrase, an ‘11th hour’ deal between Greece and the rest of the Eurozone. Britain isn’t part of the Greek bailout or the Eurozone so is peripheral to this process; David Cameron isn’t invited to the emergency Eurozone meeting on Tuesday. But Osborne has just told the House of Commons that the UK government expects the Eurogroup to discuss a new proposal from the Greek government at tomorrow’s meeting. As Osborne pointed out, the problem is that the political timetable for a deal isn’t moving as fast as the financial timetable in Greece.

Greek voters say Oxi, what will the Eurozone do now?

With half the votes counted, the No side in the Greek referendum is leading by 61% to 39%. With this lead for No at this stage in the count, it seems certain that it has won. The question now is how the Eurozone will react to this result. Before the vote, the Eurozone powers made clear that they wanted Greece to vote Yes. The Germans, French and Italians all repeatedly warned the Greeks that this was effectively a vote on whether to stay in the Euro or Not. Jean-Claude Juncker even hinted that this was a referendum on whether Greece should stay in the EU or not. So, what will

Portrait of the week | 2 July 2015

Home At least 30 British people were among 38 shot dead at a beach resort at Sousse in Tunisia by Seifeddine Rezgui, aged 23, a Tunisian acting for the Islamic State and said to have been trained in Libya. Soldiers, emergency services and 1,000 police took part in a two-day exercise in London simulating a terrorist attack. A statutory obligation became binding on public bodies, including schools, to prevent people being drawn towards terrorism. Nicky Morgan, the Education Secretary, said that schools should look out for ‘homophobia’ as a symptom of Islamist jihadism. James Brokenshire, the Immigration Minister, said the National Barrier Asset (lengths of nine-foot fencing) would be deployed

Greek referendum going ahead as Tsipras again urges No vote

After much speculation that the Greek referendum was about to be cancelled, Alexis Tsipras has just appeared on Greek television to confirm that it is going ahead and to urge people to vote No. He said that those saying a No vote would mean Greece leaving the Euro were telling lies. He argued instead, that a No would strengthen his negotiating hand and allow him to achieve a ‘social deal’ which would be easier on the poor and pensioners. Everything now turns on the result of the referendum. If it is a Yes vote, the Syriza-led government will almost certainly resign and one can see how the country’s creditors could

If Greece leaves the Euro, Cameron should start the British renegotiation all over again

Tonight, it is still not clear how the Greek situation will be resolved. The European Central Bank–which is desperate to avoid being dragged into the politics of this situation–has chosen a middle way on its emergency assistance to Greek banks. It has neither ended it—which would have crashed the whole Greek banking system—nor extended it, which would have enabled the banks to stay open and eased the pressure on the Syriza-led government. Greek banks will definitely be closed tomorrow and probably until the referendum on Sunday. The next big question is what happens on Tuesday when the bailout programme ends and a payment comes due to the IMF which Athens

The one thing that might ensure a Greek deal: fear

On a narrow, sloping street in downtown Athens sits a graffiti-strewn wall that has captured the spirit of a nation. Amidst the spray-painted slogans and flaking posters, a black-and-white stencilled image of Greek Prime Minister Alexis Tsipras looks down benignly (beneath a perfectly-observed monobrow) at passers-by. His arms outstretched, dressed in flowing robes and with a halo circling his head, he is Christ come to redeem Greece. Such is the bitter humour that now pervades the country’s capital city as the prospect of financial implosion nears. Tsipras came to power promising to get rid of austerity and take the fight to Greece’s European partners. Reality, alas, proved less accommodating. The

Greece and the Eurozone, what happens next

The Greek Prime Minister Antonis Samaras has called Syriza’s leader Alexis Tsipras to concede defeat. But n European Chancelleries, they will be holding their breath and hoping that Syriza do not manage to win an overall majority—the latest official projection has them just one seat short. If Syriza have to form a coalition, the German government, the European Central Bank and the European Commission will be hoping that it is with Potami, who would moderate Syriza’s demands. But if Syrzia wins a majority or forms a coalition with another party that wants to renegotiate the terms of the Greek bailout deal, then the Eurozone crisis will move into a new

Why Switzerland should have listened to Hong Kong on currency pegs

The Swiss National Bank usually ticks away as quietly as one of its nation’s more expensive timepieces, but when the cuckoo does occasionally burst out of the clock, all hell breaks loose. After a policy was introduced in September 2011 to depress the Swiss franc against the euro (as traumatised investors continued to pour money into safe-haven Switzerland), governor Philipp Hildebrand resigned when it came to light that his wife Kashya had sold a huge bundle of francs ahead of her husband’s market intervention, then bought them back at a handsome profit. Now, weeks after Hildebrand’s successor Thomas Jordan called the informal fixing of the franc at €1.20 ‘absolutely central’

How to fight Europe’s demons of deflation

Deflation terrifies economists because once it starts, they have no idea what to do about it. When demand in an economy shrinks, companies cut jobs, and with fewer employed demand shrinks even more. The deflationary spiral is self-reinforcing. Central banks can cut interest rates to near zero and slosh money around like drunken lottery winners, but once hope flickers and dies, there is nothing they can do to persuade anyone to invest in the economy. Deflation took hold in Japan in the early 1990s and despite the government straining every sinew, its economy is still ailing 20 years on. Europe is right, then, to be in a panic. Inflation across

Europe’s leaders worship Mario Draghi. They should listen to him instead

European Central Bank President Mario Draghi secured a place in history by his demonstration, on 26 July 2012, of the power of words in a financial crisis. Not long in office, he had already shown willingness to act firmly, averting a liquidity crunch by providing three-year lending facilities for European banks. That day, he told a conference in London: ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’ While the rest of the speech was an opaque metaphor about the euro as a bumblebee — ‘a mystery of nature because it shouldn’t fly but instead it

In Cyprus as in Britain, the prudent must pay for others’ folly – but not like this

The Cypriots are the authors of their own misfortune, having turned their banking system into a rackety offshore haven for Russian loot and lent most of the proceeds to Greece. But it was madness on the part of bailout negotiators to shake confidence in banks across the eurozone by trying to impose a levy on deposits held by even the smallest Cypriot savers, in what was presumably an attempt to cream off a layer of ill-gotten foreign cash. And even if the proposal has been radically watered down by the end of the week, we now know the European powers-that-be are prepared to pull this device out of their toolbox

Draghi makes good on his promise: but will it save the euro?

David Cameron and François Hollande met this evening. As you would expect, they discussed the situation in the eurozone, which is currently looking a little more cheery than usual after Mario Draghi announced those long-awaited ‘whatever it takes’ measures which he believes will save the eurozone. In summary, this Outright Monetary Transactions scheme involves the European Central Bank buying up short-term debt from struggling economies. To stop this cash from the ECB becoming a substitute for economic reforms, a country wanting to apply for the OMT must have signed up to certain conditions with the European Financial Stability Facility or the European Stability Mechanism. Those conditions mean austerity policies, which the

Storms over the continent

Whitehall sits and waits. Normal politics is continuing, squalls over whether the apprentice stewards at the Jubilee were taken advantage of and the next stage in the Warsi saga have dominated today, but everyone knows that the big story is unfolding — albeit, at an unpredictable pace — on the continent. There are, at the moment, two big questions. The first is how will Spain, which has essentially admitted that it will struggle to sell any more bonds, recapitalise its banks. Once again, we see the president of the ECB, the Commission and most of the other Eurozone members badgering the Germans to bend the rules and allow a quick

On the road to break-up?

Before we plunge into the Autumn Statement, we really ought to mention the poison cloud hanging over Brussels today. European finance ministers, including George Osborne, are meeting there later — and it’s certainly not going to be good for their collective health. Klaus Regling, the head of the European Financial Stability Facility (EFSF), is expected to tell them that there’s basically no chance of them boosting the bailout fund to €1 trillion in the near future, as was promised at the end of last month. Back then, David Cameron urged eurozone leaders to bring a ‘big bazooka’ to the fight. They have barely managed a cap gun. This is far

Meanwhile, in Europe…

There probably hasn’t been a meeting of European finance ministers as important as the one tonight. The euro is still at risk; with new governments in Spain, Italy, and Greece incapable of calming the markets, and Angela Merkel unwilling to let the ECB act. In a speech in Berlin, Polish foreign minister Radek Sikorski put it clearly: ‘I fear German power less than I am beginning to fear German inactivity.’ It is a fear shared in London and Paris as well. The 17 finance ministers will discuss the range of options on the table: from setting up an EU Treasury to the possibility of eurobonds or establishing a supra-national process