Do last week’s German constitutional court ruling lambasting – but failing to overturn – the ECB’s crisis-fighting bond-buying programme and Matteo Renzi’s ousting of Italy’s prime minister Enrico Letta have anything in common?
In the view of many ECB critics, particularly in Berlin, the two are not only related, but one may have caused the other. Read more
German Constitutional Court (Matthias Hangst/Getty Images)
We don’t like what the European Central Bank is doing – but if someone is going to drop a nuclear bomb on the eurozone, it won’t be us. This seems to be the main message in today’s judgment from Germany’s constitutional court on the ECB’s Outright Monetary Transactions programme.
The OMT is an initiative aimed at saving the eurozone with large-scale ECB purchases of the bonds of governments vulnerable on financial markets, in return for a commitment to deep-seated economic reforms. Germany’s Bundesbank and much of the German public have never warmed to the OMT – even though the programme has never actually been used and, some experts think, never will be.
So the German court’s judgment will come as a relief to Mario Draghi, the ECB president, and all those who hold that the OMT, unveiled in August and September 2012, is the single most important reason why Europe’s monetary union no longer appears in mortal danger. But mixed with this relief will be a feeling that the German court’s judgement is not entirely helpful – and that some of its arguments are not particularly well-founded. Read more
By Luisa Frey
♦ Many Iranians were disappointed after the recent failure to reach a nuclear deal, but instead of the country’s chief nuclear negotiator, Mohammad Javad Zarif, they are blaming France.
♦ This year’s Ashura celebrations look different in Beirut. Alongside the traditional tributes to the Prophet Mohammed’s grandson Hussein, posters show young men killed in Syria’s civil war.
♦ It is estimated that 48,000 people are missing in Syria – victims of forced disappearances, massacres and executions. DNA advances are now helping to identify bodies from mass graves and bring warlords to trial, says a special report from The Guardian.
♦ In Europe, Poland struggles to break its dependency on coal power. One of Europe’s most coal-reliant economies, the country is a rather unlikely host for this week’s UN meeting on climate change.
♦ If ECB does not act, the euro risks resembling the yen of the 1990s and 2000s, says Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS.
♦ In China, population aging has not only social outcomes, but also affects economic performance and the country’s international competitiveness, writes Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations. Read more
A protestor outside the Greek parliament (Milos Bicanski/Getty Images)
It’s no secret in Athens that austerity-weary Greeks would like to see a grand coalition emerge from Sunday’s elections in Germany. The participation in government of Peer Steinbrück and his Social Democrats, say café pundits, could bring a softening of the “keep-them-on-the-reform-treadmill” approach associated with Angela Merkel’s previous term as chancellor. Read more
♦ A recent ECB study asked what effect policy makers’ comments had on euro area sovereign bond yields: the FT’s Michael Steen thinks “it is hard to resist the temptation of wondering whether senior central bankers have heeded the warning.”
♦ The assertiveness of the Gulf petrostate monarchies over Egypt is a sign of their restored political confidence, but such a position is not without its problems, says Michael Peel.
♦ Morocco is cited as a model for Arab monarchies facing demands for democratic change, but critics argue that it illustrates how elites can maintain power behind the scenes.
♦ Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning US Treasury bills. Quartz, however, broke down the components of the stocks: “Companies that cater toward the Chinese consumer, which represent just under 11% of the MSCI and 6% of the HSCE index, tend to be a much more profitable, and they’re better performers than SOEs.” The upshot? China’s population has benefited, even if foreign investers haven’t.
♦ Latvia’s new tax laws mean it could be a “Luxembourg for the poor.”
♦ The custom of forcibly marrying girls off to resolve family and tribal disputes is continuing on an alarming scale across all provinces of Pakistan.
♦ Ireland’s head of state says the EU must drop its “hegemonic” economic model and reform the ECB, or risk social upheaval and a loss of popular legitimacy.
♦ The Great Tax Race series turns to Ireland, looking at how Ireland has remained attached to aggressive tax policies that favour businesses even as ordinary people have struggled to get by. (If you’re trying to get your head around how all of this even works, watch this handy explainer from Matt Steinglass)
♦ Richard McGregor thinks President Obama needs to circumvent Congress if he wants to get his agenda moving.
♦ Western clothing companies are scrambling to address public concerns over working conditions in Bangladesh – the Walt Disney Company ordered an end to the production of branded merchandise in the country before Rana Plaza collapsed. John Gapper today makes the argument against western companies withdrawing: “Despite everything, the industry provides better-paid jobs than the alternative – working on rural farms – and has helped to emancipate women.”
♦ Despite violence and corruption, Afghan entrepreneurs are still making opportunities for themselves.
♦ The Kremlin is putting pressure on VKontakte, a Russian Facebook clone, pushing CEO Pavel Durov to leave the country.
♦ Slate is publishing a series of excerpts from the memoirs of Mohamedou Oul Slahi who was a prisoner at Guantánamo for nearly 11 years.
♦ Mafia historian goes underground into the bunkers of the Ndrangheta, Europe’s biggest cocaine traffickers and Italy’s most powerful organised crime group. Read more
♦ The FT’s Robin Harding and Chris Giles look at the perils of austerity theory, and argue that “the essential problem is limited data.”
♦ To catch up on the debate thus far, check out our reading list.
♦ Over on Counterparties, Felix Salmon has helpfully summarised a long blog by an econometrician, Arindrajit Dube. As Salmon puts it: “the causation here seems about as clear as causal analysis can ever be: low growth causes high debt, rather than high debt causing low growth.“
♦ The FT’s Tom Mitchell, a Bostonian, writes about his response to the bombs at Monday’s marathon – “An attack on much more than a race.”
♦ A new Israeli guidebook “offers maps, tips, and tours through 18 areas of Israel where Palestinian villages once stood”. The Economist reviews it.
♦ Obama’s administration appears to hold varying views on the Syrian opposition, something that became obvious on Wednesday when Secretary of State John Kerry and Defense Secretary Chuck Hagel made separate appearances before Congress, reports the New York Times.
♦ The European Central Bank’s newest game [wait, they do games?] was released on Wednesday. Alphaville’s Lisa Pollack has played it.
♦ Silicon Valley is welcoming a new kind of business pilgrim – “itinerant company executives who come from the benighted analogue world”, writes Richard Waters. Read more
The Italian dog that did not bark is one of the great untold market stories of the past month. The yield on Rome’s 10-year bonds is around 4.3 per cent, a level not seen since the end of January.
Chart: Italy’s 10-year bond yield (black line) over the past five years; blue line shows the yield on the German 10-year bund
(Chart courtesy Reuters)
The spread with the Bund, which has obsessed Italians since the market panic at the end of 2011, has narrowed to just above 300 basis points. It almost looks as if February’s inconclusive election and the accompanying political uncertainty do not matter. This is puzzling, so here are a few tentative explanations:
1) Mario Draghi’s magic. The pledge by the president of the European Central Bank last summer to do “whatever it takes” to save the euro is the single most important explanation for the relative quiet on Italy’s bond market. The Outright Monetary Transactions scheme, whereby the ECB will purchase unlimited quantities of debt of countries in difficulty, has so far proven a remarkably resilient firewall. Read more