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Commentary

Mon 10 Dec 2018 / Europe

AKK's rise: France, euro repercussions

Annegret Kramp-Karrenbauer, the new leader of Germany's principal governing party, faces a complex struggle to impose her will on her fractious Christian Democratic Union. She will pursue a more conservative path in key areas compared with still-Chancellor Angela Merkel. This has consequences for policies to stabilise the euro. 'AKK' is a long-time Merkel ally and, more recently, her designated successor. How well she masters her shorter-term tasks will have a crucial bearing on whether, when and how she takes over the chancellorship.

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Mon 26 Nov 2018 / Europe

ECB must address QE misallocation risk

By the end of this year, the European Central Bank is expected to end its monthly net asset purchases. This raises several questions about the ECB's reinvestment strategy and the implications for individual countries. The central bank's quantitative easing programme was not as successful as believed. The real issue for the ECB governing council to address when discussing fiscal implications of reinvestment is the risk arising from the misallocation of liquidity and corresponding claims and liabilities.

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Tue 20 Nov 2018 / Asia Pacific,North America

Opening for US-China renminbi action

Since early April, the renminbi has fallen 10% against the dollar, largely reflecting dollar strength. The causes lie in the cyclical and monetary policy divergence between the US and China. However, there is an alignment of interests. Both want to pursue their domestic economic agendas without the complications of a falling renminbi. This could create an opening for unexpected co-operative action by the US Treasury and the People's Bank of China – a joint foreign exchange intervention operation to strengthen the renminbi.

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Tue 13 Nov 2018 / North America

Doves waiting in Fed wings

The rotation of voting members of the Federal Open Market Committee after its December meeting will bring to the fore outspoken doves, James Bullard of the St. Louis Fed and Charles Evans of the Chicago Fed, to balance out incoming hawks. Bullard made headlines in mid-October by calling for the Fed to stop raising rates and has proposed changed in how the Fed views the sustainability of current low unemployment and its effect on inflation. So far, the Fed has been able to raise rates because the economy has outperformed.

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Mon 12 Nov 2018 / North America

Rising external deficit 'made in USA'

As US external deficits widen in response to relatively strong US economic performance and imbalanced macroeconomic policies, there is a considerable risk the Trump administration could amplify its protectionist rhetoric and actions. Yet rising US trade and current account deficits are largely 'made in America'. The increasing divergence between the US and other major global economies, aggravated by the imbalanced US macroeconomic policy mix, remains the most striking aspect of the worsening currency confusion.

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Mon 5 Nov 2018 / North America

US faces twin deficit crisis

The US trade deficit has widened steadily over the past two years, reaching a record high of almost $1tn annually. As a result of Washington's expansive budget policy at this late stage in the economic cycle, analysts expect that over the next two years the US budget deficit will rise to a peace-time high of more than $1tn. This makes it probable that the US will face a twin deficit problem – an outsized budget deficit and an outsized trade deficit – last seen in the 1980s during Ronald Reagan's presidency.

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Thu 25 Oct 2018 / Europe

Speedy communication needed

The European Central Bank needs quickly to inform financial markets and the general public how it will conduct reinvestments next year under its quantitative easing programme. Otherwise, the enormous complexity of the task now being considered is almost certain to provoke accusations of unfair treatment from different sides. What happens will depend on a baffling series of computations facing first the bank's various specialist committees and then eventually the ECB's decision-making governing council.

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Tue 23 Oct 2018 / Europe

ECB capital key dilemma on reinvestment

The ECB faces potential charges of discrimination from Italy over maintaining its quantitative easing programme next year. Technical changes in allocating reinvestment of national central banks' maturing bond holdings in 2019 could exacerbate Italy's dispute with the European Commission over Rome's budgetary policy. Potential squabbles centre on the quinquennial recalculation of the ECB's 'capital key', which reflect long-running differences over different countries' benefits and disadvantages from euro membership.

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Tue 16 Oct 2018 / Europe

Merkel setback hurts EMU reform chances

The stunning setback for Germany's coalition parties in Sunday's Bavarian state elections will toughen Chancellor Angela Merkel's already difficult task of winning consensus for reforming and strengthening the structure of economic and monetary union. The Bavarian debacle will narrow further Merkel's room for policy manoeuvre both over budgetary squabbles with Italy and over the wider issue of strengthening the euro area's institutional architecture to help withstand the next financial crisis.

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Fri 12 Oct 2018 / Asia Pacific

No 'competitive devaluation' in China

When the Trump administration asserts that China steals intellectual property, violates foreign investor rights, engages in wrongful wholesale subsidisation of the economy, and raises questions about industrial policy pursuant to 'Made in China 2025', it stands on solid ground. Its assertions about 'competitive devaluations' by China, however, do not stand up to scrutiny. The renminbi's decline primarily reflects a strong US economy as well as contrasting cyclical developments in China, notwithstanding the efforts of Beijing's officialdom to curb pressures on the currency.

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