Daily Archives: December 19, 2013

For a few years now, I have felt as if I live intellectually in the Alps. In the European Council, I used to translate the virtues of discipline into Mediterranean languages, while also interpreting for northern countries the difficulties felt by southern Europe.

A mutual learning process is now essential. The south, as it adapts to the social market economy, must be more determined in pursuing fiscal discipline and structural reforms. Likewise the north, Germany in particular, must appreciate that such efforts by the south are unlikely to generate sustainable improvements unless Europe’s policy framework becomes more growth-friendly. Read more

Job done, at least for now. Ben Bernanke and his colleagues at the Federal Reserve will be delighted at the market reaction following their monetary “pincer movement” on Wednesday. The Fed will taper its asset purchases by $10bn a month in January – down from $85bn to $75bn a month – with a strong hint that further tapering will occur as 2014 progresses.

At the same time, however, the Fed has strengthened its “forward guidance” message. Simply put, America’s central bank is promising low interest rates for longer. If the Fed’s forecasts are to be believed, rates will now be 25 basis points lower than previously projected at the end of both 2015 and 2016. Mr Bernanke has even managed to ease some of the tensions that had muddied the Federal Open Market Committee’s message over recent months. Those members who had previously offered a more hawkish view on interest rates appear to have had their talons trimmed. Read more

As on past occasions, the agreement reached by eurozone finance ministers on the single resolution mechanism will officially be saluted as a big step towards a fully-fledged banking union. But many will be disappointed because the agreement falls short of expectations.

The mechanism is unsatisfactory from several viewpoints. The decision-making process is cumbersome and involves too many bodies. The funds are insufficient to tackle a big banking problem. The ability of the mechanism to borrow in the markets is still unclear. The period of transition to the final system is too long, at least compared to the frequency of banking crises. Overall, the separation between banking and sovereign risk – which was the main goal of the union – has not been achieved. Read more