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Senior Fellow at @brookings.edu. Previously Chief Economist at IIF and Chief FX Strategist at Goldman Sachs.
The ECB at various points has intervened in bond markets to cap yields, most recently in 2022. That's produced an equilibrium - no surprise - where high debt countries run wide fiscal deficits because they can. France is a symptom. The ECB is the disease... robinjbrooks.substack.com/p/france-is-...
Following my EU "Wall of Shame" post this weekend, I got a lot of requests to add countries. This "Wall of Shame" adds the Baltics, Sweden, Finland and France. Countries in orange have cracked down on transshipments to Russia via Kyrgyzstan. Countries in blue keep looking the other way for 3 years.
US sanctions on Russian oil tankers are so much more effective than EU ones because the threat of secondary sanctions scares people away from accepting delivery by sanctioned ships. The fact that the EU is now considering them is another important step in the right direction. Better late than never.
China's direct exports to Russia (red) have plateaued, but transshipments to Russia via Central Asia and the Caucasus (blue) are way up. China is just rerouting more stuff via third countries for plausible deniability. It remains the single biggest enabler of Russia's invasion of Ukraine...
There's first signs of contagion from France to Italy and flight to safety into German Bunds. Italy is the Euro zone Achilles heel. Without it, ECB could let French yields rise, helping France get its budget under control. But that's not possible with Italy always teetering on the brink of crisis...
How can the French gov't push through unpopular fiscal consolidation? It needs higher yields & a sense of crisis to do that, but that's hard given the ECB track record of capping yields when they rise. The Euro zone needs to rethink the ECB role in bond markets. Yield caps enable bad fiscal policy.
Between what's happening with the Fed and the crisis over fiscal consolidation in France, we're seeing the perfect storm that's driving long-term yields higher. The rise in long-term yields is all the more notable because central banks have been cutting rates, which should pull long yields down...
Thanks very much.
@robin-j-brooks.bsky.social loved the big picture!
podcasts.apple.com/us/podcast/m...
Podcast Episode · Macro Musings with David Beckworth · 08/25/2025 · 56m
In 2018, the Fed and Chair Powell came under heavy criticism by Trump during his first term. What followed was the "mid-cycle adjustment," a 75 bps easing cycle. The Fed has pivoted dovish before under pressure from Trump and that's where markets look now for the Fed to fold again. Fiscal dominance.
