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Commentary

Mon 16 Jul 2018 / Europe

Smart finance for low-carbon transition

The low carbon transition represents a significant economic challenge, requiring the complementary actions of public authorities, economic actors and financial institutions. On the public side, policies are needed to put a price on carbon, such as cap and trade or a carbon tax, as well as an overall framework that fosters long-term decisions. Transition-conscious companies must develop or seek out technologies and deploy new solutions and products. Developing smarter finance matters for the transition beyond mere financing.

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Mon 16 Jul 2018 / Asia Pacific

Central banks facing intrinsic conflicts

Central banks face a series of challenges focused on intrinsic conflicts at the heart of the relationship between finance and politics. Governments around the world have acted with central banks to change these institutions' roles and move them into new policy areas with widespread and long-lasting financial, economic and political consequences. Their unconventional monetary policies, although brought about in a bid to mitigate the effects of the last crisis, could end up triggering the next one.

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Fri 13 Jul 2018 / Asia Pacific,North America,Europe

Powell discounting external risks

He has done so despite clearly gathering storm clouds in the global economy. The Federal Reserve chair ought to pay closer attention to troubles in Italy and the risk the new government in Rome poses to the euro area, as well as the prospects of a slowdown in emerging economies, especially China, and the consequences for financial markets of a US-led global trade war.

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Thu 12 Jul 2018 / Europe

Target-2 masks reduced fragmentation

The doubling of Target-2 balances since early 2015 is a natural consequence of how the Eurosystem implements its asset purchase programmes. Consequently, the impact of the APP expansion has concealed a reversal of the financial fragmentation triggered by the euro area crisis. Were euro area members so inclined, the availability today of specific sovereign securities to back Target-2 balances provides a means to reduce them, mirroring the methods employed by the US Federal Reserve System.

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Wed 11 Jul 2018 / Europe

Big Deal at Chequers City

If you want to understand Theresa May's performance last Friday 6 July at Chequers, the UK prime minister's country residence, I suggest you watch the classic western Big Deal at Dodge City, a film about subterfuge and high-stakes poker. The story of a weak prime minister can be laid to rest – May won the big deal. She played her cards close to her chest and used ambiguity as a weapon, outwitting the Brexiteers. There will, no doubt, be tantrums, but it seems May is ready to see them off.

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Tue 10 Jul 2018 / North America

Merits of single-limb CACs

Single-limb collective action clauses are a positive innovation that will make sovereign debt restructurings more orderly and predictable. They will help tackle the hold-out creditor problem and limit ensuing litigation, which have often bedevilled restructurings. Euro area governments, in both the north and south of Europe, would be well advised to modernise the CACs in their sovereign bonds by including the single-limb feature. Rigid and automatic rules about private sector involvement are a recipe for disaster.

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Mon 9 Jul 2018

Merkel, Macron and euro-CACs

Prior to the 29 June EU summit, Angela Merkel and Emmanuel Macron said: 'To improve the existing framework promoting debt sustainability and to improve their effectiveness, we should start working on the possible introduction of euro-collective action clauses with single-limb aggregation.' Behind this phrase lurks a spectre haunting Europe: a controversy between countries with low and high debt about what to do in the event private sector lenders head for the exit and subject indebted governments to a spiral of distress and default.

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Fri 6 Jul 2018 / Europe

Waning Johnson could strengthen May

Two years after the referendum vote to leave the European Union, Boris Johnson, the UK foreign secretary and standard bearer for Conservatives backing no-holds-barred Brexit, is vulnerable. The point of keeping a maverick in a post where he can seriously impair Britain's interests is becoming ever less clear. Depending on the outcome of Friday's cabinet meeting on Brexit at Chequers, the prime minister's country retreat, Theresa May could soon be able to dispense with Johnson's services, strengthening her own and Britain's status.

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Thu 5 Jul 2018

Europe's Target-2 can learn from US

Target-2 balances, the intra-euro area settlement accounts, are heading for €1tn of Bundesbank claims on the rest of the single currency bloc. Mirroring the euro area's internal balance of payments, the Target-2 balances have been rising since the onset of the financial crisis, with a further substantial boost from the ECB's quantitative easing programme. It is worthwhile looking at the parallels and contrasts with the US – and to ponder what the US reaction would be if a similar system were enacted there.

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Wed 4 Jul 2018 / Asia Pacific,Europe

Tale of two creditors

Germany has advanced to the position of the world's No.2 net creditor, taking over the position during the past 12 months from China, which has been moving its foreign surpluses into strategic equity holdings and away from holdings of other governments' debt. Much of Germany's build-up is in non-interest-bearing, unconditional advances within economic and monetary union – much of which will probably never be fully repaid. In this tale of two creditors, China's system of state control and long-term planning is displaying some ostensible benefits.

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