With summer over, Italy is back at the forefront of the news – this time not as a holiday destination but in its other capacity, as chief source of market worries. The way things are going, the worries are only just beginning.
While all eyes are still on Turkey, another emerging market is about to show the ugly side of quantitative tightening, and this time things could get really serious.
The world’s second largest economy has been a “success story” for so long that people have forgotten about China’s many vulnerabilities. Or rather, the Chinese communist party has been so good at keeping things under wraps, that few of the country’s weaknesses are known to the outside world.
The headline may be a bad pun, but the warning is serious. Many people believe that the trouble with Turkey’s currency is confined to that country, but that is far from the case. Turkey is just the first country that implemented populist policies when the going was good to now pay for these policies. The markets are about to teach populists a lesson, and Turkey is the first instalment.
The International Monetary Fund is worried. Yes, it’s true that it always is, but this time we should be, too — or at least, those of us living in Britain.
The news that the US Federal Deposit Insurance Corporation (FDIC) is suing European banks in London for manipulating Libor should worry central bankers everywhere.
It’s all hush-hush, with details coming from reports in newspapers, rather than made public officially. The Financial Times reported that the FDIC is suing Barclays, Deutsche Bank, Lloyds Banking Group, Royal Bank of Scotland, Rabobank and UBS, as well as the British Bankers’ Association, accusing them of fraudulent misrepresentation.
Lloyds said it doesn’t believe the claim has any merit, while the others did not comment, according to the report.
Some people wonder why the Federal Reserve is in such a hurry to raise interest rates, pointing out that growth in the world’s first economy is hesitant at best. Inflation, of course, is an issue — even the stripped-down official version of inflation, “core” as they like to call it, is rising.
If you’re like me, you’ve certainly wondered why economic growth has been so sluggish after the worst post-war recession — the Great Recession, or Great Financial Crisis as some have callednthe 2007-2009 crisis. Normally, the economy should have surged, after such a deep slump.
Instead, we’re proud of economic growth figures around 2% in Britain and the US and cheer when the eurozone posts a meager GDP advance of above 1% almost a decade after the crisis.
Politics are back in play in most of Europe, and this doesn’t bode well for central bankers. Even the almighty European Central Bank had a moment of weakness last week, when it broadcast a message so complicated to markets that it should not be surprised it fell wide of the mark.
I was reading the other day on the blog of excellent Bucharest-based economist Radu Craciun his latest article: “Is Eastern Europe the EU’s scapegoat?” When I read the headline, I thought the article was about Brexit; but in fact, Radu writes about how some experts in the EU claim that the single currency was created as a way to maintain the unity of the Union after it expanded “too rapidly” to the East.
Well, that’s new. I didn’t realise that, besides causing English people to behave irrationally against their own interests and vote to leave the world’s biggest trading bloc, Eastern Europeans are also guilty of inspiring what could turn out to be the world’s least successful currency union.
It’s unclear when it all started, but it has reached the point where it would make the biggest banker of all times, John Pierpont Morgan, turn in his grave.