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Eastward Ho! The euro area’s push into the Balkans

The inclusion of the Bulgarian lev and the Croatian kuna in the Exchange Rate Mechanism II (ERM II), which was announced last Friday, marks a crucial step for both countries to becoming the 20th and 21st members of the euro area. Bulgaria and Croatia won’t imminently join the currency union, though. As stipulated in the Maastricht Treaty, prospective members are expected first to demonstrate a…

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Quo vadis, BTPs?

It’s been a wild ride in May for Italian government bonds, so-called Buoni del Tesoro Poliannuali (BTPs). The yield spread of 10-year BTPs over 10yr German Bunds first rose to c. 250 basis points (bps) after the German Constitutional Court had ruled that the ECB’s Public Sector Purchase Programme (PSPP) was partly unconstitutional. Subsequently, the Italian risk premium collapsed to c. 190 bps…

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Tourism drop in CEE and CIS – many losers but also some beneficiaries?

Summer has arrived, and so should the main tourist season in Europe in a normal year. However, as we know, this year has been anything but normal. With lockdown endings in sight across the majority of countries in the region, most are preparing to welcome tourists back. Some have already opened their borders for EU visitors, while many prepare to open them for everyone from late June or early …

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Switzerland has discovered the lower bound. Will other central banks follow?

While it is certainly too early fully to understand the impact of COVID-19 on economies around the globe, one thing is for sure: the shock to economic activity is going to be enormous in the short run as sectors of the economy simply shut down. Having experienced one of the biggest corrections in history last month, financial markets have started to be somewhat more upbeat of late. Market part…

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Some quick thoughts on Italy after yesterday’s regional elections

Italy currently has a “yellow-red” government

Conte is the Prime Minister supported by 5 Star Movement (yellow) and the left party (red). Prior to this government there was a “yellow-blue” government led by Conte and supported by 5 Star movement (yellow) and the right party with Salvini (blue).

Over the last couple of years there have been 2 significant changes

  1. The right-wing parties…

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Why the fresh US sanctions on Russia are unlikely to cause a meltdown

Late on Friday night, the US announced a fresh round of sanctions against Russia, effective from the 26th August. These restrictions represent the 2nd round of sanctions in line with the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act). The announced sanctions include US opposition to the financial or technical assistance to Russia provided by international…

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Bankers & Bolsheviks: International Finance and the Russian Revolution by Hassan Malik. Our interview with the author; and win a copy of his book.

In the years leading up to World War 1, and then the Russian Revolution in 1917, Russia had become the world’s largest net international debtor.  It was borrowing heavily to finance industrialisation (railroads, oil, iron and cotton production) and as its population grew it saw rapid economic growth.  WW1, and the earlier 1905 conflict with Japan had also resulted in rising debt.  At the same t…

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Emerging Markets: 5 key issues to watch in 2019

Emerging Markets (EM) debt had a torrid 2018 as global macro risks (including general geopolitics and trade wars), softer EM growth and idiosyncratic stories (Argentina, Turkey), all repriced relatively expensive valuations at the beginning of the year. Are the new prices a better reflection of fundamentals? This will largely depend on the evolution of 5 key topics.

  1. China-US – upside surprise…

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Can Russia stomach new US sanctions?

After the summer break, the US Congress is scheduled to review various bills proposing additional sanctions on Russia. The proposals include additional restrictions on Russian imports and exports to the US, as well as on activities of Russian banks in the country. Under consideration there will also be a ban, for US citizens, to trade any newly-issued Russian sovereign debt with a maturity of m…

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Risk-off is on

Renewed political tensions between the US and Turkey and Russia increased uncertainty and led to a currency sell-off in both countries. Traditional safe-haven assets, such as US Treasuries and the yen, rose. Are these crises telling us anything about the state of the global economy?

What is happening and why?

The Turkish lira and the Russian ruble plunged recently, following an escalation of di…

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