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Commentary

Fri 24 May 2019

Weidmann ECB countdown

The probability is rising that Jens Weidmann, Bundesbank president since 2011, replace Mario Draghi as head of the European Central Bank. But it would be combined with many problems and risks, and a last-minute attempt to block him cannot be ruled out. Signals in Weidmann's favour may come as early as next week. Decision-making on the ECB job forms part of continent-wide political shifts – including the nomination of a new European Commission chief and expected departure of British Prime Minister Theresa May – after the European Parliament election results.

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Thu 23 May 2019

Britain's powerless leaders

Theresa May, like Jeremy Corbyn, and indeed any current party leader, lacks a Commons majority to break the Brexit impasse. One escape route lies in the 'March revolution' engineered by MPs Oliver Letwin and Yvette Cooper, and John Bercow, the House of Commons speaker. This empowered backbenchers to take over the procedure for passing bills which can force the executive to implement parliamentary decisions. The policy bore fruit when both houses passed a bill to force the prime minister to seek an extension to the-then 29 March deadline.

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Wed 22 May 2019

EU elections may end Italy coalition

For Italy's ruling coalition, the European parliamentary elections are a test on the viability of governing together. If Salvini's Liga makes strong gains as predicted, it would be a strong incentive for him to dissolve the coalition and call a general election. It was incohesive from the outset. It is difficult for two contrasting views of society to coexist and the situation has been made worse by a combination of grandstanding and lack of experience in the machinery of government.

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Tue 21 May 2019 / Asia Pacific

Renminbi 'weaponisation' talk overblown

A media furore has flared over whether China will dump US Treasury holdings or 'weaponise' the renminbi. The debate is entertaining, but misses the mark. In spite of much rumour and conjecture, in the past China has consistently neither acted to 'dump' or 'weaponise' its Treasuries, nor shown interest in doing so. Instability is anathema to Chinese leaders and portfolio managers. It's contrary to their self-interest. A sell-off could ratchet up US Treasury yields, imposing massive capital losses on Chinese official dollar holdings.

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Thu 16 May 2019 / Africa

Africa needs inclusive trade agreement

The African continental free trade area (AfCFTA) is among the most interesting and momentous developments in trade. Signed by 52 African countries, it is by number of participating countries the largest trade agreement since the formation of the World Trade Organisation. It is increasingly recognised in the international trade discourse that trade must become more inclusive. The policy-makers behind the AfCFTA can learn from integration efforts elsewhere in the world. Failure, too, is a famously great teacher.

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Wed 15 May 2019 / Asia Pacific

China holds 'moral high ground'

Beijing's response to Washington's tariff increase on Chinese imports has, to date, been relatively mild. If the US were to expand its tariff measures, Beijing is expected to continue to retaliate in a similar reserved fashion. This is because it is difficult for China to respond with equal measures, since the country imports a great deal less from the US than the US does from China. However, this is not the only reason. By responding only mildly, China is able to maintain the moral high ground in this global dispute.

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Tue 14 May 2019 / Middle East

Turkey headed for debt default

Behind Argentina, Turkey has the dubious distinction of having the world's second worst performing currency. President Recep Tayyip Erdoğan's mishandling of his country's currency crisis heightens substantially the probability that Turkey will soon default on its external debt. At the heart of the swooning Turkish lira has been the loss of domestic and foreign investor confidence in the government's ability and willingness to correct the large economic imbalances built up by years of overly easy monetary and fiscal policies.

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Thu 9 May 2019 / North America

Powell parries inflation questions

At the press conference that capped the most recent two-day meeting of the Federal Open Market Committee, journalists tried and tried again to get Fed Chair Jay Powell to budge from his stubborn point of view that 'inflation will return to 2% over time and then be roughly symmetric around our longer-term objective'. The new dip in inflation, Powell said, was due to 'transitory factors'. He was at pains to dispel the notion gaining ground in markets that the Fed was contemplating a cut in rates.

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Wed 8 May 2019 / North America

'It's still the economy, stupid'

The campaign mantra it's 'the economy, stupid', first coined by President Bill Clinton's strategist, James Carville, has ruled US electoral politics for more than a quarter-century, and remains critically important. Other issues will of course come into play, such as healthcare and identity politics, but if the US economy remains strong between now and November 2020, the Democrats will find it hard to unseat Trump. The US is just 18 months away from the next election, which has the potential to be even more contentious than the last.

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Tue 7 May 2019 / North America

Fed should focus on winning over public

The Federal Reserve's review of its 'monetary policy strategy, tools and communication practices' – especially during the forthcoming June conference – offers an opportunity to examine the questions surrounding Fed 'independence'. One of its goals should be to win over the public, rather than fascinate markets and high priests of monetary policy. The Fed should dispel public perceptions that it alone can deliver all desired economic outcomes, let alone determine stock market prices.

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