We use cookies to help improve and maintain our site. More information.
close

April 19, 2017

Shadows of money

In his FT column Wolfgang Munchau picks up an article by Daniela Gabor and Jakob Vestergaard about the role of "shadow money" and its deep consequences for central banking. The novel approach of their research is the focus on private sector repos in particular, which commingle money and bonds into a single instrument. The significance for the current system of inflation-targeting central banks and debt-stabilising fiscal policy from the dominance of these financial instruments is going to be profound:

“The commingling of money and debt has important consequences. One particularly toxic side effect is a valuation doom loop. The more financial institutes trade in repos, the more bonds they require as collateral. That increases the price of those bonds, and reduces their yields. This in turn make these financial instruments even more attractive for the money markets. This type of money is critically depend on governments issuing enough bonds to feed the beast. It is not hard to see how this money market snowball game can come to a violent end. And it raises fundamental issues about the separation between central banks and governments. The central bank is clearly not the sole or even the main source of money in the economy.”

Show Comments Write a Comment

April 19, 2017

Breppe Grillo vs Eurointelligence

Beppe Grillo has responded to Wolfgang Munchau’s assertion that he and Marine Le Pen do not have the foggiest about a euro exit strategy. Munchau argued that this is not a decision one can leave to a referendum because the financial markets would force a government's hand within seconds of either party coming to power. Whatever happens, the future of Italy or France in the eurozone will not be settled by referendum. 

Beyond the usual defence that the Italian people were never asked about euro membership, Grillo makes an intriguing point - intriguing not in the sense that we agree with it, but in the sense that it tells us about the kind of arguments to expect. Grillo says that, on exit, the new lira will not devalue by a great deal against what he calls the new Deutsche Mark. He refers to a study predicting only a minimal devaluation on the grounds that Italy now runs a current account surplus.

If that were true, we wonder, what would the benefits of a euro exit be, given the massive costs of a breakup of the monetary union? If we believe that the new currency would trade in the same band, you would be insane to favour a euro departure. Grillo’s response reaffirms to us that he and his colleagues do not appreciate the enormity of an Italian euro exit, or even about an open-ended political process that questions it. We have some sympathies with the euro exit arguments, but we see that those in favour of it seems to underestimate what awaits them.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 10, 2017
  • EU in self-destruction mode
  • The EU's fault lines
  • Fake News and Fake views
  • November 30, 2016
  • Is Russia behind a massive cyber attack in Germany?
  • Will Fillon move to the centre?
  • The Dutch left field is getting crowded
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • October 16, 2017
  • What‘s the deep meaning of the elections in Lower Saxony?
  • Can Brexit be revoked?
  • Macron's grand narrative
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence
  • October 20, 2016
  • No games please, we are Europeans
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • September 21, 2017
  • Time to get serious about Brexit
  • Would the FDP claim the job of finance minister?
  • The return of the ultra-right to German politics
  • May 15, 2017
  • SPD and CDU disagree on how to respond to Macron
  • Was Rajoy blackmailed?
  • The rise of the re-leavers
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 30, 2016
  • Brexit facts on the ground
  • Burkinis and Republican primaries
  • The SPD and TTIP
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 04, 2017
  • Can Brexit still be stopped?
  • Could Poland open up the Posted Workers Directive again?
  • Has the Bank of England solved the productivity puzzle?
  • November 13, 2017
  • A pro-European list: Wauquiez' nightmare
  • Catalan separatism isn't going away
  • Why oh why does Germany behave the way it does?
  • Why the four freedoms matter
  • October 23, 2017
  • Macron's plans for the European Parliament
  • First phase of Brexit negotiations in final stretch
  • Why the left hates Europe
  • October 06, 2017
  • Catalan parliament session suspended
  • Can Jamaica fail? (not the country)
  • Portugal to give tax relief to the lower middle class
  • Stagnant wages and Central European populism
  • September 20, 2017
  • AfD on the rise
  • Is this the end of the FN as we know it?
  • Refugees overflowing Lesvos lead to call for action
  • September 05, 2017
  • On the Turkish question
  • Macron's unemployment insurance reform, next?
  • Labour to vote against the Repeal Bill
  • August 21, 2017
  • Soft, getting softer
  • Tsipras' chances of a boost
  • On the fallacy of a middle-ground option for the eurozone
  • July 25, 2017
  • The impact of Duda's veto
  • How to undo Brexit
  • Front National: Frexit or not?
  • July 12, 2017
  • And now for the real Brexit talks
  • June 30, 2017
  • Recurring Brexit myths
  • On EU citizen rights
  • On Brexodus
  • June 19, 2017
  • SPD to focus on inequality
  • On radical uncertainty
  • June 08, 2017
  • Day 0
  • Macron and his overly enthusiastic minions
  • May 30, 2017
  • Beer tent politics - Merkel edition
  • Brexit arrives in UK elections
  • Rajoy clears budget hurdle
  • May 22, 2017
  • Catalonia's independence blueprint
  • Commission wants completion of eurozone by 2025
  • The case for more honesty about the abolition of cash
  • The case against an Italian euro exit
  • May 15, 2017
  • SPD and CDU disagree on how to respond to Macron
  • Was Rajoy blackmailed?
  • The rise of the re-leavers
  • May 08, 2017
  • A message of hope
  • Barnier's not so easily agreed Brexit principles
  • The rebirth of the paranoid conspiracy theory
  • May 02, 2017
  • An accident waiting to happen
  • Matteo Renzi wins PD primaries
  • So much for the Schulz effect
  • April 26, 2017
  • The realities of Brexit - residency rights edition
  • How Franco-German economic imbalances manifest
  • Pasok - the now classic Socialist dilemma
  • April 23, 2017
  • The demise of the AfD has accelerated dramatically
  • On how France will need to confront Germany
  • April 20, 2017
  • Don’t bet on Trump turning globalist
  • A note on UK election polls
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence