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Commentary

Wed 23 May 2018 / Europe

Forgoing EU benefits is 'act of self-harm'

One of the most puzzling aspects of the arguments over Britain's exit from the European Union is the way that the single market and customs union have been spun as something sinister from which the UK needs to escape so that it can be free to trade with the rest of the world. I was a diplomat for nearly 40 years, writes David Warren, and spent much of that time promoting British trade and attracting foreign investment, particularly from Japan. Membership of the single market and customs union was a magnet for the latter, and no hindrance to the former.

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Tue 22 May 2018 / North America,Europe

Delegating power to the governors

Paul Tucker's tome 'Unelected Power' ranges over the risks of untrammelled growth in central bank powers after the 2008 financial crisis and the need to constrain them in a series of agency agreements fully intertwined into the fabric of elected government. He draws some telling parallels with the judiciary and the military, two organs to which the government devolves exceptional powers. All three arms of state are given still greater authority at times of crisis; governors, as Tucker drily observes, can always be found at the scene of financial disasters.

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Mon 21 May 2018 / Asia Pacific,North America,Europe

Flexibility in allocation strategy

Bonds have been one of the worst-performing asset classes over five, 10 and 20 years, and oil prices have declined dramatically since 2014. This combination of forces, exacerbated by a decade of quantitative easing, low interest rates, slow productivity growth and aging populations in advanced economies, has led to heated debate over which asset classes and strategies public investors should pursue. It has also helped to intensify the shift into alternative assets, particularly real estate and infrastructure.

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Fri 18 May 2018 / Europe

Privacy is big business

The EU's General Data Protection Regulation affects small, medium-sized and large companies across Europe and the world. The date for compliance on 25 May is very close. Fewer than one in 10 UK small companies are prepared. Data protection is expensive. No company collecting and processing the data of EU individuals is exempt. Penalties for non-compliance are up to €20m, or 4% of annual global turnover for smaller businesses, whichever is larger. OMFIF has redefined its data-processing activities to demonstrate best practice.

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Thu 17 May 2018

Argentina's latest IMF trial

If ever there was a country in need of an IMF-supported adjustment programme, it is Argentina. Whether it has the political will to comply with the fund's conditions is another matter, while its previous painful experience with the IMF further complicates matters. Monetary tightening by the Federal Reserve is already leading to a more taxing global liquidity environment, and elections in Mexico and Brazil could increase political instability in Latin America. The last thing the region needs is for Argentina to spiral out of control.

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Wed 16 May 2018 / North America

Lowering the Fed balance sheet

In the light of rising inflation and a tightened labour market putting upward pressure on wage growth, it is unsurprising that some analysts now expect the Fed to lift rates a total of four times this year. At the same time, the Fed's long-term plan to shrink its unprecedently large balance sheet is in its sixth month. Janet Yellen and Jay Powell, the former and sitting Fed chairs, characterised moves on both these fronts as essential on the path towards policy normalisation after years of low interest rates and quantitative easing.

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Tue 15 May 2018 / Europe

Rebels take charge of Brexit

Because of a handful of British parliamentarians, the UK's European Union exit process is now more convoluted than ever, only 10 months away from the formal date of departure. Neither Conservative Prime Minister Theresa May nor Jeremy Corbyn, leader of the Labour opposition, is strong enough to set a new direction. Local elections in England on 3 May have, if anything, deepened the stalemate. A political vacuum in Westminster has been filled by rebel backbench MPs in the Tory party and Labour peers in the House of Lords

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Mon 14 May 2018 / Europe

Germany's important Target-2 debate

German economists are debating what would happen to Target-2 intra-euro area imbalances if a member country left Europe's economic and monetary union. Under current regulations, Target-2 balances are treated as central bank balance sheet entries that are unredeemable, without expiry dates and produce interest at the ECB's main refinancing rate (0%). The economists are suggesting a framework to transform these imbalances into a collectable debt or credit that would be settled by the departing state.

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Fri 11 May 2018 / North America

Escaping the US debt trap

The US economy is caught in a debt trap. Avoiding a major downturn requires alleviating the burden of servicing public and private debt. The key to this is restructuring federal debt, which will diminish the country's net interest burden. International creditors, including China and Japan, may be forthcoming so long as the US refrains from excessive protectionism and its economy keeps growing. Herein lies the danger. If the Fed tightens its policy mix too quickly, the economy may derail in a couple of years.

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Thu 10 May 2018 / North America

Trump addresses new balance of burdens

The balance between burdens and benefits has changed against the US. Donald Trump is pursuing the same general policy that any other president would: reduce burdens and ask for more benefits to bring the balance in line with today's global economy. The rest of the world finds such a seminal shift difficult to accept, but in the eyes of many US politicians and much of the electorate it is long overdue. The trade issues are merely skirmishes. The battle will come when it becomes unsustainable for the US to service its sovereign debt.

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