Category Archives: European Update

ECB Decision: The Choice of the Glutton, with Nothing Left on the Table

Standing before a smorgasbord of policy options, the president of the European Central Bank (ECB), Mario Draghi, made the choice of the glutton; he chose them all: lower interest rates, expansion of the balance sheet, short-term financing to banks and forward guidance. Short of purchasing sovereign bonds and throwing in the kitchen sink, practically every [...]

Economic Consequences of Crisis in Ukraine

We are optimistic that there will be no further escalation, i.e., it is unlikely that Russia’s President Vladimir Putin will move his forces further west into Ukraine beyond the Crimea. The reason is, neither country can afford the political and economic costs of escalation. Our baseline scenario is for a short-lived crisis, the de facto [...]

Russian Troops in Crimea Trigger “Flight To Safety”

A global “flight to safety” is taking place in financial markets since Russia took de facto military control over the Ukrainian southern peninsula of Crimea over the weekend. Equities were hit in Asia, Europe and emerging markets overnight, while Treasury bonds rallied. Financial markets in Russia were hit even harder. Oil prices have also risen, [...]

Surprise Rate Cut in Europe

Europe: Surprise rate cut to preempt deflation & support fragile economic turnaround To the surprise of many, the European Central Bank (ECB) decided today to cut in half its key, short-term interest rate to 0.25% from 0.5%. While the option to reduce rates further was on the table, the lack of adequate “signaling” ahead of [...]

Does Cyprus matter?

As a matter of fact, it shouldn’t. The country is a small island in the Eastern Mediterranean, with one million people and not quite $24 billion in GDP; Cyprus represents a small fraction of the more than $13 trillion GDP of the Eurozone. Furthermore, the rescue package decided by the European Union (EU) over the [...]

What is OMT? Explaining the ECB’s New Plan

Today the European Central Bank (ECB) announced a bond purchase plan (“Outright Monetary Transactions”, or OMT) to lift market pressure on sovereign debt in a few struggling countries: Greece, Spain, Italy. The plan entails unlimited purchases of short-term (up to three-year) government bonds and aims to keep a lid on borrowing costs at a time [...]

Europe: The Struggle between Hardliners and Realists

Two dates loom large on the future of the euro and the eurozone: On September 6, the European Central Bank (ECB) governing council will meet. Policy discussion will revolve around a new plan to purchase government bonds from individual countries, like Italy and Spain, in an attempt to contain the eurozone debt crisis. This will [...]