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It’s ECB day and after Mario Draghi’s recent dramatic utterances, expectation for fresh action has grown, expectations which are likely largely to be dashed.
Draghi told the world’s central banking elite in Jackson Hole last month that market inflation expectations were falling markedly and the European Central Bank would use everything in its power to stabilize them in order to avoid a deflationary spiral. He also ripped up central banking orthodoxy by calling for more fiscal spending by governments at the same time as redoubling economic reform efforts. How to read that?
Two possibilities spring to mind. Either Draghi (who has talked with a number of EU leaders recently) thinks he can secure fresh a commitment on structural reform and can use that to go back to his ECB colleagues to argue they should cross the ultimate Rubicon and start printing money in return.
Or, he is disillusioned with the lack of reform to labour markets, pensions systems etc – which was the oft-forgotten quid pro quo for his game-changing “whatever it takes” pledge two years ago - and thinks the ECB has reached the end of the road in terms of what it can do and is telling the bloc’s governments it is now down to them to foster an economic revival.
A glut of euro zone GDP data is landing confirming a markedly poor second quarter for the currency area.
The mighty German economy has shrunk by 0.2 percent on the quarter, undercutting the Bundesbank’s forecast of stagnation. Foreign trade and investment were notable weak spots and the signs are they may not improve soon.
Mostly bereft of policy options except for outright quantitative easing, European Central Bank President Mario Draghi hopes that hundreds of billions of euros more in cheap loans to banks will boost inflation.
The jury will be out for a long time before we get any decision on whether they have worked.
European Central Bank President Mario Draghi makes a lengthy appearance in the European Parliament in Strasbourg. He will doubtless reassert that the ECB would start printing money if necessary but, as we reported last week, policymakers are fervently hoping they won’t have to and that a raft of measures announced in June will do enough to lift the economy and inflation.
Bundesbank chief Jens Weidmann fired another broadside over the weekend, saying rates were too low for Germany and policy should remain expansive for no longer than absolutely necessary.
European Central Bank President Mario Draghi will deliver an evening keynote speech in London – the scene for his game-changing “whatever it takes” declaration in 2012.
He is unlikely to come up with anything so dramatic this time but is clearly trying to convince that the ECB could yet start printing money if required to avert deflation.
European Commission president-elect Jean-Claude Juncker will hold talks with the various political groupings in the European Parliament as he seeks to develop policy positions. Most interesting would be indications about which way he is bending in the growth versus austerity debate.
Italy’s Matteo Renzi, resurgent after a strong performance in May’s EU elections, is pressing for a focus on measures to get the euro zone economy firing and has even managed to get Germany to talk the talk. But any leeway will be within the existing debt rules, not by writing new ones.
Ukrainian forces pushed pro-Russian rebels out of their stronghold of Slaviansk on Saturday. Its re-capture represents Kiev's most notable military victory in three months of fighting in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.
The regions of Donetsk and Luhansk are likely to be next in the government forces’ crosshairs.
The prospect of U.S. and Iranian intervention in Iraq looms larger.
Baghdad has asked the United States for air support to counter Sunni militants who have seized major cities in a lightning advance that has routed the Shi'ite-led government army. And Iranian President Hassan Rouhani has signalled that Tehran was prepared to intervene to protect Iraq's great Shi'ite shrines.
As of last night, ISIL fighters were in control of three-quarters of the territory of the Baiji refinery north of Baghdad and some international oil companies were pulling out workers.
By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
House price bubbles thrust economies forward and crush them when they burst. The International Monetary Fund has now raised the prospect of a global housing bubble that could potentially destabilise the world economy. The risk is credible, but the IMF is sadly too coy about the root cause of the problem – ultra-loose U.S. monetary policy.
Who are the two most important people in the EU? It’s hard to argue against Angela Merkel and Mario Draghi and they meet today in Berlin.
It’s supposed to be a private meeting but of course we’ll be digging, particularly for any signs that the German leader is for or against the European Central Bank printing money if it is required to beat back deflation.