ECB

Note: This is a longer version of what appeared as an opinion piece in the Wall Street Journal on the 1st of Feb 2013

After a year in which European Union policy makers spent much time obsessing about banking union, it is time to take stock of the discussion. The question today is not about the intellectual case for a more unified approach to bank regulation and supervision within a single-currency area such as the euro zone. That case is still strong. Rather, it is about if what is being pedalled as a ‘banking union’ will deliver the goods—whether it will help tackle the economic crisis that still looms large over Europe or not. Evidence is now stacking up that it will not.

The EU's banking union was sold as a means to break the "vicious circle" connecting weak banks and weak sovereigns—and to do so quickly. As a way to mitigate the risks that troubled banks pose and weak sovereigns pose to each other, however, the plan is looking more ineffectual by the day. Although the European Stability Mechanism (ESM) can inject capital into struggling banks, a number of caveats apply.

This piece was first written and circulated on the 2nd of September and appeared as a comment piece in Le Monde on the 10th of September 

The Eurocrisis is on a pause as markets and EU leaders alike wait with bated breath for ECB. President Draghi, who has promised the European Central Bank will not let the Euro fail, to reveal his hand. They are right to think what the ECB will say or do is very important, but it is hard not to feel that too much is being expected of the ECB.

Between the things the ECB cannot do and the things it will not do, its ability to deliver a sustainable ‘big bang’ has been severely curtailed. There are three main reasons to suspect that no matter what the ECB does this week or the next it will not be sufficient to stem the Eurocrisis. Those who have their hopes riding on the ECB are best advised to recognize that while larger scale ECB interventions are necessary, they are simply not sufficient to bring the Eurocrisis under control.

Spiking skywards? Tackling rising yields in the Eurozone

The Eurocrisis is once again dominating the headlines. Renewed talk of a Greek exit, record yields for Spanish bonds and rising Italian borrowing costs have been splashed all over newspaper headlines. This week Spanish bond yields reached new record highs breaching the 7% level for maturities of two years and above. Italian yields too were trying new highs.

Then the president of the ECB spoke saying that the ECB would do "whatever it takes" to save the Euro. The markets reacted positively and yields fell. There is an expectation in the markets that policy makers may come up with some new measures to address the spiking yields soon. We are much more sceptical both of their immediate intentions to enact more measures and their ability to bring the yields down sustainably. One could hardly expect the president of the ECB to not say that he would do whatever it takes to save the Euro. This Policy Brief addresses two questions 1) why are spiking yields a problem? and 2) what are the near-term options for bringing these down.