Eurozone fragmentation: special focus

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The breakdown of the eurozone's market functioning has imperiled the ECB's monetary policy, the cross-border banking business model and economic convergence. Euromoney investigates the economic, capital market and policy fallout.



ECB QE: special focus


Awards for Excellence 2015: Banker of the year
July 2015
John Hourican-600

John Hourican, the Bank of Cyprus chief executive, will move on this summer after restoring the bank to health. The rapid recovery of the bank led to a net increase in deposits in Cyprus in the fourth quarter of 2014 for the first time since the bail-in in March 2013, a trend that has continued into 2015 despite uncertainty in Greece and the full abolition of capital controls.

Country Awards for Excellence 2015: Western Europe – Cyprus
July 2015
Best bank: Bank of Cyprus.

Euromoney Country Risk survey results H1 2015: In search of safe havens with Greece on the brink
July 2015
The latest quarterly round-up from Euromoney’s crowd-sourcing country risk survey – a unique poll of more than 440 expert participants – shows no fewer than 80 of the world’s 186 sovereigns becoming riskier during the first half of 2015.

Portugal and Hungary to reclaim investment grade, says risk survey
July 2015
Euromoney’s crowd-sourcing, survey-based approach to evaluating country risk successfully predicted a similar path for the Philippines two years ago. In addition to these two European borrowers, however, there are a handful of others with longer-term prospects for investors to keep an eye on.

Banking in Italy: Economies of scale
July 2015
Only structural change, not tweaks, will bring a recovery across Italy’s banking sector.

Portugal debate: Portugal perks up
June 2015
The country’s economic recovery continues to gather momentum, underpinned by strengthening domestic demand and robust exports. The government has regained access to the international capital markets and concerns about contagion have receded. There are still vulnerabilities: debt levels are high and the banking system is weak. But Portugal has a spring in its step that it has not had since before the crisis.

Against the tide: UK politics – Dependent and independent
June 2015
The newly elected Tory party must wrestle with an invigorated SNP and its old bête noire, the EU. The proposed in/out referendum will cast a long shadow over the UK.

Crisis in Greece still threatening the eurozone
May 2015
Euromoney’s risk experts weigh up the various options as the 'end-game’ nears.

Against the tide: Greece – the joker in the pack
May 2015
The eurozone recovery looks increasingly secure but the low growth rate is still a big cause for concern.

Tsipras prepares the ground for compromise as Greek deal inches closer
May 2015
As the race to reach an agreement on Greek reforms and the latest instalment on the European aid package enters its final weeks, prime minister Alexis Tsipras looks set to make the necessary concessions to secure European assistance.

How eurozone QE is reshaping the bond markets
April 2015
If Europe’s economy remains in crisis, then someone please tell the bond markets. The ECB’s asset purchase programme has driven half of the EU’s sovereign debt pile into negative yield territory. And Draghi’s plan has only just started. Funds see little choice but to follow the QE monster on its path of destruction through the yield curve. Will that lead to the surreal outcome of all EU sovereigns yielding the same, regardless of credit quality?

Against the tide: Glow of recovery in Europe
April 2015
At times the ECB seems to lurk so far behind the curve that it appears to be using some sort of random monetary-policy generator.

Baltic bonds are expensive – get used to it
April 2015
It should be no surprise that Latvia is trading well inside Italy. The fiscally disciplined Baltic states would fare better than the eurozone’s southern periphery in the event of a Greek exit.

Risk experts adopt a nuanced position on AustriaMarch 2015

The credit implications of resolving failed lender Hypo Group Alpe Adria (HGAA) are not what they seem. The upshot is Austria is not about to suffer the same fate as Cyprus, Iceland or Ireland.

Against the tide: The fragmentation of Europe
March 2015
Political pressures and lack of growth have put the European project under threat. Reform is urgently needed to set Europe back on course.

Portugal’s ‘Syriza’ faces uphill battle
February 2015
A relatively stable political climate has boosted Portugal’s economic recovery and secured record low borrowing costs. But are markets too complacent? Euromoney interviews anti-austerity advocate Rui Tavares, a leftist founder of Livre and an ally of Greek finance minister Yanis Varoufakis, as the ruling centre-coalition seeks to secure its position ahead of the September elections.

ECB commences covered bonds amid intrigue
February 2015
The ECB commenced its covered bonds purchasing programme last week, but no sooner had it started than rumours surfaced about a new plan to purchase corporate bonds. The fevered speculation demonstrates the lack of confidence in the ECB's existing plan, reviving questions about full-scale QE and its seniority in bond holdings.

Failed ECB asset purchases plan has wrought 'malign impacts' for the market
February 2015
The corporate bond market fears crowding out as quantitative easing looms.

Against the tide: The ECB goes for broke
February 2015

The eurozone’s economic fortunes should start to recover with the arrival, at last, of full-blown quantitative easing. As the world’s leading currencies are set for a race to the bottom, it could be time to buy gold.

All eyes back on Greece but break-up still unlikely, say analysts

January 2015
Concerns that Greece could be on the verge of leaving the euro are back to the fore after the country called elections that could usher in a government determined to rip up the existing aid agreement – but analysts doubt the brinkmanship will lead to Greece leaving the single currency, let alone a full-scale euro break-up.


Distressed debt: AQR unearths a further €136 billion NPLs in EuropeDecember 2014
Stress tests fail to address corporate lending; online platforms might have emerged too late.

Banking: AQR aftermath throws up more questions for banks
December 2014
Investors greeted the European Central Bank’s asset quality review with little more than a shrug. They view it as merely the first step on a journey to enhanced and uniform bank supervision that might take a decade to complete. They are much more worried about the sustainability of banks’ business models and whether or not they can even earn enough to service their growing capital stack.

Heightened French risk still imperilling the eurozone
November 2014
France’s creditworthiness has continually worsened during the six years since the global financial crisis. The question is whether the rising risk trend will continue into 2015 and will that begin to affect its borrowing costs, which have recently hit record lows.

Bundesbank’s Dombret says trust restored in European banking system
November 2014
In an interview with Euromoney, Bundesbank board member Andreas Dombret sounds an upbeat note on the rigour of the ECB’s asset-quality review (AQR) and the eurozone’s resolution arrangements, but issues a sharp warning over banks’ risk-free treatment of sovereign debt.

Against the tide: Eurozone still under the coshNovember 2014

The financial sector remains central to the eurozone’s economic woes. Promises of ECB support only prolong the problem.

ECB-Fed divergence triggers corporate hedging
October 2014
The US has reached a milestone by announcing the end of its eight-year quantitative easing stimulus programme as its economy recovers, but the news highlights the increasing policy divergence between the US and Europe. Corporates have as a result started factoring in increasing euro weakness ahead of 2015.

ECB commences covered bonds amid intrigue
October 2014
The ECB commenced its covered bonds purchasing programme last week, but no sooner had it started than rumours surfaced about a new plan to purchase corporate bonds. The fevered speculation demonstrates the lack of confidence in the ECB's existing plan, reviving questions about full-scale QE and its seniority in bond holdings.

Against the tide: Draghi’s dilemma
October 2014
The ECB president is striving to stave off deflation in the eurozone yet Germany will not countenance full quantitative easing. Something must give.

Draghi prays for a miracle but capital weightings leave his ABS purchase programme fatally hobbled
October 2014
ABS purchases to include Greece and Cyprus as ECB reveals latest plan for balance-sheet expansion.

Irish comeback offers a safer eurozone betSeptember 2014
With Ireland’s sovereign yield now comfortably below 2% and risk score continuing to climb, investors have reason to be optimistic over its prospects.

Greece seeks swifter NPL resolution regime
September 2014
€75 billion or 35% of Greek loans non-performing; analysts warn banks could face €12 billion capital hole.

Bulgaria: Eurozone entry long way off
August 2014
Bulgaria’s ambition to join the euro is slipping further out of reach as the bank run on its fourth-largest lender Corporate Commercial Bank (KTB) brings allegations of corruption and political instability to the fore and further diminishes the country’s standing in Brussels, say analysts.

Europe’s bank risks back under the spotlight
August 2014
The failure of Portuguese lender Banco Espírito Santo (BES) points to lingering fault lines in the financial regulatory framework and knock-on effects for banks outside the EU.

Portugal rates investment grade in spite of its bank troubles
August 2014
Investors might be worried by the tail-risk implications of the failed Portuguese lender BES but the sovereign is in a much improved state since completing its three-year bailout programme.

Greek banks focus on the presentAugust 2014
The country seems to be turning a corner: there are hopes its economy might return to growth this year. Local banks think they’re in good shape for the European Banking Authority tests and that there might even be opportunities in non-performing loans.

Against the tide: QE this year is inevitableJuly 2014ECB president Mario Draghi has resisted using his quantitative easing bazooka up to now. However, with inflation expectations already moving lower, he will have to fire it before the year is out.
Euromoney Country Risk survey results H1 2014: EM rout prompts flight to safetyJuly 2014The latest results from the ECR survey show emerging markets (EMs) becoming riskier during the first half of this year, in contrast to the increasing safety offered by developed countries across the G10 and an improving eurozone.
The spectre of bail-in risk across EuropeJuly 2014The spillover from the proposed voiding of state guarantees on subordinate debt of Austria’s Hypo Alpe Adria could hit bonds of other banks across Europe.

Against the tide: Time for ECB action
June 2014
There is no time to waste for intervention to overcome persistently low inflation in the eurozone.

Credit rating agencies' shortcomings laid bare by ECR eurozone periphery trends
May 2014
Experts taking part in Euromoney’s Country Risk Survey were ahead of the game in predicting the increased default risk plaguing peripheral, eurozone sovereigns in the wake of the 2008 crisis, and repeatedly so across a range of issuers.

The ins and outs of eurozone regulation
May 2014
Lithuania and its fellow Baltic republics are in an unusual position when it comes to euro adoption. Whereas in the rest of emerging Europe the majority of banks are outside the eurozone, but owned by lenders within, in the Baltic states the situation is reversed.

Against the tide: Europe deflates; time for QE
May 2014
The ECB view that eurozone disinflation is slowly reversing is unconvincing. QE might be the only strategy left, although it is not risk free.

Eurozone still on-course for break-up, warns Saxo CEO
May 2014
Lars Seier Christensen and other speakers at Saxo Bank event share concerns that, despite appearances, the eurozone has not averted the threat of break-up and blasts EU’s ‘totalitarian model’.

Ireland and Spain lead the way on a long road back for the eurozone periphery
April 2014
Improved risk scores by Euromoney Country Risk indicate the worst might be over for the debt-distressed eurozone sovereigns, but caution is the buzzword, as many countries are grappling with huge debt burdens, and with question marks still surrounding Greece.

Jury remains out on ECB deflation-fighting plans
April 2014
Draghi attempted to convince markets at Thursday’s press briefing that the ECB has officially awarded itself some new monetary policy tools – with the most dramatic being QE – as it frets over the prospect of the eurozone sliding into deflation.

Šimonyte: Lithuanian central bank eyes euro ambition
March 2014
Bank of Lithuania deputy chief Ingrida Šimonyte discusses the country’s euro-adoption plans, the challenges for the foreign-owned banking system, and the asset quality review in a wide-ranging interview.

ECB surprises markets with ‘do nothing’ strategy
March 2014
Enduring strength in the euro might derail any nascent recovery

Against the tide: Populism might gain, but the centre will unite
March 2014
The EU elections are likely to deliver big gains for populist parties of the left and right, namely those opposed to the European project and/or further integration.

Against the tide: Debt deflation in Europe?
February 2014
A more optimistic picture of the eurozone economy is clouded by deflationary pressures, which are especially perilous in Greece. There is no easy fix, but a cheaper euro would help.

Against the tide: Don’t be beastly to Germans
January 2014
US claims that Germany’s external surpluses are hindering global recovery are inaccurate and unjustified.

Inside investment: The European wrong contest
January 2014
Investment strategists seem convinced that the euro crisis is over and European equities will outperform in 2014 as growth returns. There are clear and present dangers to this cosy consensus view and the banks are still at the heart of the problem.

Against the tide: The eurozone’s nexus of debt
December 2013
The debt crisis is not over. A renewed bout will spring from banks in the EU periphery.

ECB weighs quantitative easing as options to revive economy run dry
November 2013
With inflation continuing to fall and growth flatlining, pressure is mounting on the ECB as it edges closer to exhausting less contentious policy weapons to combat the threat of deflation.

Rabobank chief economist calls for monetary financing by the ECB
November 2013
Stresses are being felt closer to the core as investors pile into the recovery in the periphery of the eurozone.

Eurozone banks’ NPL crisis threatens to derail recovery
November 2013
The IMF warns that corporate loan losses for banks in Spain, Italy and Portugal could hit €282 billion over next two years, highlighting the scale of the challenge for the ECB’s asset-quality review amid continued financial fragmentation.

Against the tide: Germany complicates union
November 2013
Germany will dig in its heels about structures that might put it in a minority in decision-making and might expose its taxpayers to unwanted bailouts.

Eurozone plans for single bank resolution authority in disarray
October 2013
Efforts to create a single European resolution mechanism to bail out or wind down troubled eurozone banks are bogged down in uncertainty and political wrangling, throwing the banking union project into doubt, according to experts.

ECB asset quality review is moment of truth
October 2013
Europe’s Tarp moment could be looming as ECB president Mario Draghi issues a sharp warning that the year-long review of the region’s banking system will be credible and might require public backstops. Many long-neglected issues are coming to a head, from accounting and bank-reporting norms to national regulatory conventions. However, there is no clarity yet on the hot-button questions.

European bank-instability risk falls by around 30%; France remains outlier
October 2013
The leverage of the French banking system poses a European-wide risk to financial stability, according to the Centre for Risk Management at Lausanne, which otherwise notes positive bank-leveraging progress in the region in recent months.

Mergers & acquisitions: Banks must sell equity or businesses
September 2013
Eurozone banks still have a way to go in deleveraging, but investor concern over weak disclosure might close access to equity. 

European banking: Investors doubt banking union plan
September 2013
Survey says banking union will not reduce default risk; SSM set-up could be pushed into 2014.

Primary dealers eye European government bond markets exit
August 2013
RBC Capital Markets’ retreat from eurozone primary dealerships looks portentous rather than idiosyncratic.

Greek banks lead fall in European bank-stability risk
August 2013
Greek lenders have beefed up their liquidity and capital buffers in recent months amid a Europe-wide fall in systemic banking risk, according to the latest projections from a European systemic risk index.

Coeuré: ECB confronts SME financing challenge
August 2013
SMEs are key to growth and have a prominent role to play in kick-starting economic recovery in Europe. In an exclusive interview, Benoît Coeuré, member of the executive board of the European Central Bank, discusses the challenges that Europe faces in stimulating financing to small and medium-sized enterprises, including the creation of a truly pan-European and cross-border capital market in the region and how securitization can be used to re-establish funding to these firms. 

Germany's quiet economic revolution shows strain
July 2013
Rising real wages and consumption have boosted German growth without a corresponding increase in productivity, generating headwinds for economic growth and corporate profitability for years to come, argue analysts at Natixis, the French investment bank.

Eurozone tremors continue to ripple out – ECR Q2 2013 results
July 2013
Eurozone slide is maintained with the region’s average score hitting a new low in June, as 10 of the 17 participating member states succumb to further score declines during H1 2013.

ECB playing with fire as politicization fears grow – Citi's Buiter
June 2013
As European leaders grant the ECB expansive powers, the Cyprus bailout, the negative sovereign-bank feedback loop and the continued provision of liquidity support underscore reputational risks for the central bank, warns Willem Buiter, Citi's chief economist.

French banks most systemically risky in Europe – HEC Lausanne study
June 2013
French policymakers would need to inject up to €300 billion of capital – the highest level of support in Europe – to prop up the country’s banking system during a severe global financial crisis, according to a new European systemic risk index, Euromoney can reveal.

Restructuring: Flowers slams Europe over inaction
June 2013
Danger of ‘Lehman-type event’; advocates US model of receivership.

Greece’s return to sovereign debt market a pipe dream
June 2013
Despite falling yields on Greek government bonds and renewed interest from international investors, the dire economic outlook and inability to reduce its debt burden means Greece is years away from being able to issue sovereign debt, according to analysts.

Europe’s regional governments hunt for efficient funding
June 2013
Municipal and regional governments are trying to build new investor bases in the teeth of the eurozone crisis. And they’re having success, not least in the Nordic region, which could provide a template for other parts of Europe.

EU sells out over Cypriot capital controls
April 2013
European authorities hope their repeated assurances that Cyprus is a special case will curb contagion and ensure the fiasco there does not set a precedent for future bank crises.

Mittelstand: the envy of eurozone amid regional split
March 2013
Much of the eurozone economy is in hot water, with corporates complaining about a lack of access to attractively priced capital, but one market in particular has bucked the trend: Germany.

Country Risk: Euromoney survey highlights uneven eurozone transfer risks as region splits into two
March 2013
Uncertainty over the legal sanctity of eurozone jurisdictions for the smaller and more indebted member states is raising alarm bells for depositors and investors. But bondholders had been alerted to heighted transfer risk by Euromoney’s Country Risk Survey.

Eurozone crisis bigger global threat than MENA conflict, US debt China hard landing
March 2013
Cyprus's deterioration in ECR's rankings reflects the stark impact of the eurozone crisis on global sovereign risk. The eurozone’s problems had a more negative impact on global sovereign risk assessment than regime transition concerns in the Middle East, according to Euromoney Country Risk analysts.

Cyprus tests the limits of currency union  
March 2013
The agonizing process of agreeing a bailout in Cyprus has set troubling precedents for creditors, laid bare fractures within the European currency union and reminded investors of the ad hoc, inconsistent and arbitrary nature of its institutions’ response to sovereign crises. 

Cyprus crisis: eurozone collapse vs. chill the hell out
March 2013
Macro-conjecture-on-a-fast-moving-story alert: no one knows how the Cyprus bailout will play out. However, dismissing its impact, citing the small size of the economy, misses the point: the damage to market psychology and the EU's institutional architecture is very real.

Cypriot bailout deadlock sparks fears of euro exit
March 2013
Analysts contemplate the possibility of Cyprus leaving the euro due to the political standoff in Nicosia and Berlin. 

Contagion fears grow as Cyprus bailout proposal breaks taboos
March 2013
The proposed raid on insured depositors in Cyprus threatens a wave of unintended consequences for the eurozone's stability in the long-term and throws into sharp relief the political fragmentation at the heart of the EU, say hawkish analysts, bucking the largely sanguine sell-side consensus. Irrespective of the final terms of any bailout, the damage has already been done by breaking taboos.

Wanted: EU banking union as Cyprus kills off deposit-insurance dream
March 2013
The Cyprus bailout crisis lays bare the clear need for an EU banking union. Nevertheless, the eurozone’s single market will remain incomplete in the likely absence of an EU-wide common deposit scheme, with the solvency of national deposit guarantee schemes irrevocably tied to that of the sovereign.

Spanish bonds risky business before deficit numbers announced
February 2013
While Spanish prime minister Mariano Rajoy is confident that the upcoming deficit levels will highlight Spain’s dedication to fiscal consolidation, analysts at CreditSights argue that the goal might be out of reach. Investors should show caution when it comes to Spanish debt.

Bank of England governor-designate Carney draws battle lines but recognizes uphill struggle
February 2013
Mark Carney, current Bank of Canada governor, revealed his monetary and bank-reform policy options, during a grilling at the UK's Treasury Select Committee, setting himself up for a showdown with more hawkish monetary advocates.

The monetary union progress report: Europe versus US
January 2013
As Europe speeds towards greater fiscal and monetary union, a process accelerated by the debt crisis, it’s worth remembering that it took close to 150 years for the world’s other great and enduring monetary union to take shape. 

Mounting Europe’s corporate bond refinancing wall
January 2013
Credit markets are poised on a knife edge, with a huge pool of European corporate debt needing to be refinanced in the coming years in an era of scarce liquidity, fear some market players. But others believe market innovation will enable borrowers to scale the refinancing cliff.

Special focus: Financial regulation

Fears over EU exit weigh heavy on City
January 2013
Leading investors and lawyers warn that the UK risks diluting its influence in Europe, threatening its trade and the financial industry, after UK prime minister David Cameron’s landmark speech that pledged a referendum on the country’s future in the EU.

The deal to cut Greece’s debt might be underestimated 
December 2012
After each move from eurozone policymakers, the sceptics come out with the verdict: it won’t work. But what if, with the latest deal to cut Greece’s debt, this time it really is different?

The €18bn bond that aided the Italian renaissance 
December 2012
Despite Italy’s colossal public debt, rising political risk and an economy languishing in recession, the country is possibly having one of its best quarters as Italian government bond yields fall to fresh lows and the treasury wraps up its 2012 funding needs with aplomb. 

How 2012 regulation transformed syndicate deal execution 
December 2012 
New regulations have hampered an old technique employed by primary debt capital market bankers to guage investor demand: so-called pre-sounding. 

Arguments rage over banking union
November 2012
The ECB’s eagerness to assume the daunting challenge of supervising all eurozone banks shows how the very survival of the single currency now depends on banking union.

European financial market separatism gathers pace
November 2012
The race to develop local capital markets has kicked off as bank lending dries up and de facto capital controls inhibit the functioning of the eurozone’s single financial market. However, tighter regulation and resource constraints challenge corporate treasurers in their bid to access capital.

National regulators hamper EU banking union drive
November 2012
National supervisors, by reducing the fungibility of liquidity and capital for cross-border EU banks, have imperiled the banking union project. Despite a recent market rally, regional financial market fragmentation is gathering pace, a blow to private-sector capital-raising, the ECB's monetary transmission and the international banking model, more generally.


Regulation: Danish central bank talks tough on Basle III and European banking union 
November 2012
Basle III proposals would hurt Danish banks; Denmark wants equal treatment in bank union

The return of Europe's local markets
November 2012
For more than a decade, Europe was all about the single market – and that included bonds. As bank lending dries up, that’s starting to change. After years of neglect, local capital markets across Europe are on the rise once again as national governments seek to kick-start growth and plug the yawning corporate funding gap. 

European banking: Two cheers for banking union
October 2012
A chorus of commentators is urging speedy progress towards European banking union.  

Could Catalonia survive as an independent region?
October 2012
Fears over the regional independence push are likely to stalk Spain for years while the EU-wide ramifications run deep.

EU policy deluge hinders banking reform drive
October 2012
The most disruptive recommendation of the Liikanen commission is the ring-fencing of banks’ retail and trading books. But the jury is out on whether political leaders have the appetite to implement the wide-ranging recommendations amid fatigue and policy co-ordination fears.

Cracks in the EU banking union plan 
September 2012
Competing objectives plague the European banking union plan amid German fears over rising liabilities and the supervision of its public sector banks.

Balkan blues for the eurozone
August 2012
The home bias of German banks, most notably, has gathered pace in recent months, at the expense of peripheral Europe. The trend is set to continue - but don't forget the role of pro-cyclical regulation in adding insult to the eurozone’s injury.  

The fissures in the cross-border European banking model
July 2012
In general, the non-domestic operations of many European banks fail to deliver profits, much to the ire of besieged shareholders. Tighter regulation and a higher cost of capital herald a new dawn for European banks' intra-regional and emerging market aspirations.

Eurozone crisis: Calls grow louder for European banking union
July 2012
Hype builds around new solution; But how to get the German taxpayer to agree?

Greek private sector lending threatens Cyprus’s banks
June 2012
While Cyprus and its banking sector are struggling to deal with losses from Greek sovereign bonds, a bigger risk looms: a wave of non-performing loans from the private sector that could savage the capital and liquidity position of Cypriot banks in Greece.

Bankers cool on European banking union plan
June 2012
For all the grandiose rhetoric of a banking union as a way to resolve the eurozone crisis, bankers at the Institute of International Finance meeting feared the EU's single market in financial services is disintegrating before their very eyes.

Inside investment: Solon(g). And good riddance
June 2012
Grexit or not, the selective default of Greece has already changed everything for both bond and equity investors in Europe.


Fear of capital controls threatens corporate debt 
May 2012
Anxiety is likely to increase in the run up to the Greek election amid fears over bank runs and euro break-up 

There’s one problem with a European deposit guarantee scheme: it won’t work
May 2012
Deposit insurance schemes offer scant consolation amid systemic bank runs and currency redenomination fears.