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Commentary

Tue 19 Jun 2018 / Europe

Euro distraction from Merkel weakness

Angela Merkel's political weakness in Berlin is an unpleasant distraction as euro area countries prepare to announce measures to reinforce economic and monetary union at the 28-29 June Brussels summit. The German chancellor's preparations for setting up a European Monetary Fund are being overshadowed by a dispute over asylum rules both in Germany and with European partners. Potentially fatal squabbling in Merkel's fractious coalition could damage euro confidence and widen spreads between Italian and German government bonds.

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Mon 18 Jun 2018 / North America,Europe

Fed and ECB risk being caught off guard

In 2008, both the Federal Reserve and European Central Bank were caught off guard by the Lehman Brothers bankruptcy that led to the worst global economic recession in the postwar period. Judging by their respective decisions on 14 June to tighten their monetary policy stances, it seems both risk once again being caught out by impending crisis. By not focusing on the rapidly deteriorating international economic outlook, the Fed and the ECB risk failing to deliver on their respective domestic mandates.

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Fri 15 Jun 2018 / North America,Middle East

Oil price spike brings risk back

Oil prices have soared by about 70% since last June, to around $77 per barrel for Brent crude. The increase was caused by a combination of greater global demand, supply cuts by Opec and geopolitical disruption, such as President Donald Trump withdrawing the US from the Iran nuclear deal. These latest developments have affected sentiment towards emerging markets negatively. Rising oil prices are the most significant tail risk to the global economy and, as a result, to the positive outlook for risk assets in 2018.

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Thu 14 Jun 2018 / North America

Fed considers doing the twist again

The long end of the US yield curve is at its flattest for more than a decade, risking distortions in the economy as the Federal Reserve raises rates. Under Operation Twist, the Fed bought $667bn of longer-dated bonds with terms from six to 30 years between 2011-12, replacing bonds with terms below three years. If the Fed twisted the yield curve again it would help ensure a balanced tightening of monetary policy. However, even mentioning such a strategy could cause a violent reaction in long-dated rates.

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Wed 13 Jun 2018 / Asia Pacific

East Asia must strengthen safety net

The growing complexity of the macroeconomic landscape and the intricacies of financial networks have amplified the danger of volatile capital flows in the Association of Southeast Asian Nations and neighbouring countries. It is important for Asean to deepen regional financial co-operation and bolster the Chiang Mai Initiative Multilateralisation. Besides enhancing this safety net through the pooling of reserves, authorities should examine the use of local currencies for invoicing trade.

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Wed 13 Jun 2018 / Europe

Trust, not rules, foundation of central banking

The aftermath of the 2008 financial crisis led to a boom in one sector in particular – books by central bankers and finance ministers. Former Bank of England Governor Mervyn King, Federal Reserve governors Ben Bernanke and Alan Greenspan, and Hank Paulson, US Treasury secretary between 2006-09, have all written memoirs with explanations for the crisis and prescriptions for the future. Now Paul Tucker, the BoE deputy turned academic, has made his contribution, 'Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State'.

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Tue 12 Jun 2018 / Europe

Struggle for Germany's monetary soul

The struggle for Germany's monetary soul is intensifying. France is launching a full-frontal campaign to persuade the Germans to strengthen economic and monetary union as a means of standing up to President Donald Trump's trade bullying. Yet Germany also faces strong domestic warnings that political pressures from Paris, Rome and Madrid, combined with the effects of Britain's departure from the European Union, could leave the country isolated within a Europe trying to expropriate German wealth.

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Mon 11 Jun 2018 / Europe

Greek epic runs its course

Part-tragedy, part-epic: that describes, in the past eight years, the relationship between the IMF, Greece and the rest of Europe. A new chapter beckons. By all appearances, the Fund will not be activating its 'approval in principle' programme for Athens. The new German government has shown little more readiness than the previous one to decide necessary Greek debt relief. So, in its future interactions with Greece, the Fund will move to surveillance and post-programme monitoring, without providing any funding.

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Fri 8 Jun 2018 / Europe

Rome's overblown ECB grievances

The claim by Italy's new government that the ECB intentionally bought fewer Italian bonds during the country's tumultuous political negotiations in May is overblown. It rests on the observation that Italian bonds made up their lowest monthly share of total bonds purchased under the ECB's public sector purchase programme since its start in March 2015. But in April the ECB over-purchased Italian bonds by €259m, while the average monthly deviation from Italy's capital key since March 2015 is a positive €662m.

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Fri 8 Jun 2018 / North America,Europe

America alone

US isolationism will be the defining feature of the G7 gathering of world leaders this week. Guided by his 'America first' mantra, Donald Trump has been critical of multilateral decision-making. In addition to direct actions such as last week's tariffs on the EU, the US is subverting the functioning of the global trade system in ways that have attracted far less attention. Its undermining of the process to fill vacancies on the World Trade Organisation's appellate body risks paralysing the function of the WTO to restrain protectionism.

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