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Commentary

Mon 19 Feb 2018 / North America,Europe

Pension funds divest from fossil fuels

Public pension funds are tasked with safeguarding the financial futures of their members, which requires making the best possible investment choices. There is a glaring irony when those choices may endanger the lives they are intended to support, such as when pension funds finance fossil fuel production. Public investment funds have a social function. Pressure to find the best returns have compromised this role. Policy-makers and fund managers must address how pension funds are contributing to global warming.

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Fri 16 Feb 2018 / Europe

Orchestrator of Maastricht

Ruud Lubbers, the Netherlands' longest-serving prime minister and a member of the OMFIF advisory board, who died on 14 February aged 78, mixed firm credentials on European integration with a sense of continent-wide pragmatism. In later years, he took up strong positions promoting green policies, part of an anti-climate change vanguard that has swept across many areas of business and economic life. He helped orchestrate the European summit in December 1991 at Maastricht in the Netherlands that laid out the road to the euro.

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Thu 15 Feb 2018 / Europe

Brexit will damage UK services exports

Distance and economy size are the most important factors determining the level of trade between two countries. This 'gravity' model has proven remarkably robust. The EU is a rich, large market on the UK's doorstep, and its single market has proved more effective at reducing barriers to services trade than bilateral free trade agreements. The idea that globalisation has become unmoored from geography – and Britain is about to reap the rewards – is wishful thinking. Brexit will damage the UK's flagship services sector, rather than liberating it.

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Wed 14 Feb 2018 / Europe

Vicious Italian campaign, many scenarios

Unusually vicious campaigning has been a feature of the Italian election due to take place on 4 March. A centre-right coalition around Silvio Berlusconi's Forza Italia and a centre-left coalition around Matteo Renzi's Democratic party face public disenchantment with politics in their attempts to prevent runaway success for the Five Star Movement populists. Both coalitions are fragile and riven by internal conflicts. One possible outcome is for the president of the republic to appoint a government to draw up a much-needed new electoral law.

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Tue 13 Feb 2018 / Europe

Ringfencing cryptocurrency risk

Last week in London, Yves Mersch, member of the ECB's executive board, gave an OMFIF City Lecture in which he spelled out, for the first time, the central bank's generally hostile views on cryptocurrencies. He highlighted the potential risks to financial stability and possibility of market contagion, but these are not worthy reasons for regulators and investors to ignore the potential of the underlying technology. As Mersch admitted, 'Just because the initial euphoria and hype subsequently fade, it does not mean that the innovation is without virtue.'

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Mon 12 Feb 2018 / Asia Pacific

Building on Zhou's legacy

Governor Zhou Xiaochuan of the People's Bank of China is likely to step down from his post by March after 15 years in charge of the central bank. Details are beginning to emerge about the future leadership of the PBoC, and the government is likely to anoint a new governor in a matter of weeks. The appointee, from within or outside the bank, will need to be politically savvy as well as have the skills to guide China through a potential debt crisis and further internationalisation of the renminbi.

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Fri 9 Feb 2018 / North America

Difficult first week for new Fed chair

The spike in US long-term interest rates is alerting Jay Powell, the new Fed chair, to the inflation risk that might result from an overheated US economy. The volatility in stock markets during the past week seems to highlight the possibility that too rapid an increase in US interest rates could lead to the disorderly bursting of the global asset bubble. That could bring on another US and global recession. Powell should push for some form of 'helicopter money' that would involve the Fed financing the Treasury to send a cheque to every citizen.

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Thu 8 Feb 2018 / Europe

Berlin shifts to social, European spending

Agreement on a new version of Angela Merkel's German coalition will give the Social Democratic Party control over the finance ministry. The SPD is in essence storming what Germans know as the Julius tower – the battle-scarred citadel in Spandau that for 150 years has been a metaphor for surpluses amassed by the German treasury. As a price for backing Merkel for another four years after September's inconclusive general election, the SPD has won support for extra social spending as well as funds for institutional reinforcement of EMU.

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Thu 8 Feb 2018 / Europe

EU unity on Brexit not guaranteed

The next phase of Brexit talks must address manifold issues on the future UK-EU relationship. A change in the stance of individual EU countries will further complicate matters. The unity they showed in the first phase will not be as strong in the second, as different patterns of interaction with the UK emerge. This is likely to be to the UK's disadvantage, as individual countries may feel more empowered to pursue their own interests. It was to the UK's advantage in the first phase that the EU27 agreed to delegate the talks to chief negotiator Michel Barnier.

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Wed 7 Feb 2018 / Europe

Brexit talks enter phase two

In December the EU decided to permit talks on Britain’s exit from the bloc to move on to details of the future of the UK-EU relationship. Parts of the British media called this a significant achievement. But the main reason the talks have reached this point is because the UK has retreated from almost all its earlier positions. Given the relative strengths of the two sides, this was always the probable outcome. The second phase of talks will be arduous, and the UK may come to regret the time wasted on the first.

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