"The optimists will be right until they are wrong"
Certainly, the stress tests should be based on what one might call a plausible worst-case scenario, not one that represents the absolute worst. Nobody is asking the bank supervisors to stress-test the impact of an alien attack.
But sovereign default in the case of Greece is not such a far-fetched scenario – even if you believe it to be unlikely. It is irresponsible for the stress testers to ignore that sort of event.
That is like a car crash tester failing to consider the possibility of an oncoming vehicle.
Wolfgang Münchau FT July 25 2010
Only a closer union can save the eurozone
I am aware that, at a time of rising nationalism and regionalism throughout the EU, there is no consensus for such sweeping reforms
At some point the markets will realise that large parts of the German and French banking systems are insolvent, and that they are going to stay insolvent
Wolfgang Münchau, FT, June 27 2010 19:52
The eurozone’s tragic small-country mindset
One of the most important characteristics of a small open economy is that its own actions have little impact on the rest of the world.
Wolfgang Münchau, FT 13 June 2010
The last few days have reminded me of the speculative attacks
on sterling and the Italian lira in September 1992.
Wolfgang Münchau February 7 2010
What the eurozone must do if it is to survive
The clear and present danger to the eurozone is Spain.
Wolfgang Münchau January 31 2010
The management of the Greek economic crisis raises some disturbing parallels with the aftermath of the Peloponnesian war. The war ended in 404BC
I fear something similar might happen if the eurozone were to impose austerity from the outside, as a quid pro quo for a possible bail-out, which may become necessary if the Greek government were to get into financial difficulty.
Wolfgang Münchau January 22 2010
Before 2007, independent central banks would have had no problem presenting credible exit strategies. They would have pointed to their inflation target, and how they would use their medium-term inflation forecast or some other analytical framework to ensure that the price level would remain on a stable trajectory.
Wolfgang Münchau, FT July 26 2009
What I hear more and more, both from bankers and from economists, is that the only way to end our financial crisis is through inflation.
Their argument is that high inflation would reduce the real level of debt, allowing indebted households and banks to deleverage faster and with less pain.
The advocates of such a strategy are not marginal and cranky academics. They include some of the most influential US economists.
Wolfgang Münchau, Financial Times, May 24 2009
The forthcoming Group of 20 summit is going to be a disaster.
So it looks like it is going to be an L – not a V or a U.
I mean an L-shaped recession, one that starts with a steep decline, followed by very low growth for many years.
Wolfgang Munchau, Eurointelligence 09.03.2009
We know that the current driving force behind this downturn is “deleveraging”.
Overindebted households and undercapitalised banks are adjusting their balance sheets, building up savings in the first case and restricting lending in the latter.
There is no chance of a sustained economic recovery until that process is almost complete.
Wolfgang Münchau, Financial Times, December 28 2008
We should not try to avoid 1929. We have already failed.
The best we can do now is to avoid 1930, 1931 and 1932
What about the €200bn European Union stimulus package that was agreed in a watered-down form by EU leaders on Friday?
Unfortunately, it is a public relations exercise first and foremost, designed to dupe people into believing that the EU is finally doing something.
Wolfgang Münchau, Financial Times, December 14 2008
DEBUNKING THE PAULSON PLAN
The good news is that the bail-out of Wall Street will probably save us from an imminent collapse of the financial system.
But it raises disturbing questions.
Wolfgang Munchau 23.09.2008
House prices may fall 40-50 percent
Wolfgang Münchau, Financial Times, November 23 2008
Fed's weapon of mass desperation
The mother of all bond market crashes
Wolfgang Münchau, Financial Times, November 23 2008
Two aspects of the eurozone economy are often mixed up. One is its overall performance.
The other is the divergences that at any time exist within the single currency area.
If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.
Wolfgang Münchau, Financial Times, July 20 2008
Inflation and the lessons of the 1970s
Wolfgang Münchau, FT May 25 2008
Riksbanken får beröm för att dom ljög
The International Monetary Fund last week gave central banks some wicked advice.
They should no longer ignore residential property prices when setting interest rates.
At the same time, the IMF recommends central banks should retain their inflation-targeting frameworks.
It all sounds very plausible. Unfortunately the two goals are inconsistent.
Wolfgang Münchau Financial Times April 6 2008
A repeat of the Great Depression is unlikely
Deflation is the ultimate economic calamity. This is also known as the liquidity trap.
Wolfgang Munchau, FT February 11 2008
Who gives a damn about inflation?
Now that the age of moderation has ended, we are returning to Phillips curve-type discussion.
rising inflation is the most painless way out of a debt crisis
Wolfgang Münchau blog 31.01.2008
Interest rate cuts work their way through to the real economy by a number of transmission channels.
Cui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork.
So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008
Krugman on monetary transmission channels
My guess remains that the US and UK will try to inflate themselves out of their troubles.
Wolfgang Munchau (Portal)
Prepare for a global economic downturn, but not a meltdown
This is not really a “subprime” or “credit” crisis, as it is frequently called. This is a banking crisis.
Economic history has taught us time and again that banking crises do not simply go away.
Wolfgang Munchau 07.01.2008
The ECB is not a true price stability advocate,
but a central bank whose first priority is financial stability.
Wolfgang Münchau, Eurointelligence 5/12 2007
Dollar’s last lap as the only anchor currency
the Bretton Woods II theory
Wolfgang Munchau, FT November 25 2007
The news last week that the United Arab Emirates and Qatar are considering dropping the dollar peg is another important development,
the significance of which cannot be overestimated.
If this happens, it may well mark the unravelling of a regime known in the policy jargon as Bretton Woods II.
Wolfgang Münchau, FT November 18 2007
The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time:
a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis.
Wolfgang Munchau, FT November 11 2007
I think the really interesting question to be asked to which extent central banks have contributed to, or even caused, this crisis.
This is not about Mr Greenspan, or a single monetary policy decision at a particular time, or whether US interest rates were raised too late in the last cycle.
This question relates to the longer-term impact of monetary policy during the age of global disinflation,
which started in the early 1990s, and which has just ended.
The ECB, the Fed, and the Credit Crisis, Wolfgang Münchau. 07.11.2007
A market correction is coming, this time for real
Much of the good news has come as a result of extraordinary levels of liquidity pouring into opportunities around the globe. To a large extent this is due to the Federal Reserve’s expansionary monetary policies early in the decade and the US administration’s fiscal stimulus.
William Rhodes, FT March 29 2007
There are two phases in an asset price bubble that repeat themselves with clockwork regularity.
The first is the phase of the bogus economic theory.
The second phase is a prolonged state of denial.
In the US subprime mortgage bubble, we are now in phase two
Wolfgang Munchau, FT
The question is: will the cynics get lucky in 2007?
The good, the bad and the ugly scenarios
Wolfgang Munchau, FT 3/1 2007
The eurozone may boom until hit by the combined force of higher interest rates, a higher exchange rate and possibly lower global equity prices.
The optimists will be right until they are wrong.
I am not sure this scenario is any less likely than the optimists’ case, according to which global imbalances either never adjust or adjust in a benign way.
Wolfgang Munchau, FT 11/12 2006
The world confronts the risk of a US recession next year,
brought on by a collapse in house prices.
Europe will not escape the impact of dollar depreciation
The countries worst affected would be the Netherlands, Denmark, Sweden, Norway, the UK and Switzerland. Interestingly none of these countries, save for the Netherlands, is a eurozone member.
Wolfgang Munchau, FT 4/12 2006
If there is one area where Europeans are from Mars and Americans from Venus, it is monetary policy and the role of monetary aggregates.
Last week, the world’s two most prominent central bankers publicly disagreed.
Wolfgang Munchau, FT 14/11 2006
The difference between the benign scenario of a soft landing and a collapse in house prices with a spillover to the financial sector is enormous.
Bubbles eventually burst and economic forecasts implode when bubbles explode.
Wolfgang Munchau, FT 18/9 2006
Why has the Swedish economy performed so astonishingly well and should this matter for Sunday’s general election?
Wolfgang Munchau, Financial Times 11/9 2006
As an explanation of why Europeans are on average so much poorer than Americans, productivity is a partial answer at best.
Wolfgang Munchau, FT August 28 2006
Headline inflation matters, especially if it races ahead at annual rates of about 4 per cent as it does in the US at the moment.
Core inflation is a misleading indicator in times of protracted increases in energy prices.
Wolfgang Munchau, Financial Times, 19/6 2006
Monetary policy is decision-making under uncertainty. Central bankers do not disagree about the benefit of price stability.
They differ on how much insurance they are prepared to pay to protect themselves against failure to meet the target.
Wolfgang Munchau, Financial Times 22/5 2006