Who’d be a central banker?
The focus is already on the euro zone finance ministers meeting in Copenhagen, starting on Friday, which is likely to agree to some form of extra funds for the currency bloc’s future bailout fund. What they come up with will go a long way to determining whether markets scent any faltering commitment on the part of Europe’s leaders.
In the meantime, top billing goes to Bundesbank chief Jens Weidmann speaking in London later. He is heading an increasingly vocal group within the European Central bank who are fretting about the future inflationary and other consequences of the creation of more than a trillion euros of three-year money. There is no chance of the ECB hitting the policy reverse button yet but the debate looks set to intensify.
A combination of German inflation and euro zone money supply numbers today (which include a breakdown on bank lending) will give some guide to the pressures on the ECB.
Central bankers face a very mixed picture with U.S. recovery and high oil vying with the unresolved euro zone debt crisis and signs of slowdown in China.
Bank of England Governor Mervyn King was sitting firmly on the fence yesterday, saying he did not know whether more QE would be required in Britain or not. Tellingly, he also did not know whether euro zone policymakers will take advantage of the window of opportunity offered them by the ECB or not. King illuminated a common theme coming from central bankers, saying the onus was firmly on the politicians now, while his colleague Adam Posen noted that the reason Britain’s recovery has lagged America’s is because of the former’s tough austerity measures. That’s another debate that is echoing around the euro zone.
In the States, Bernanke said it is too soon to declare victory in the U.S. economic recovery.
Back to the euro zone and Spanish media was alive with reports that the EU was pressing Madrid to take a bailout to recapitalize its wobbly banks. The denials from both centres were so emphatic that it seems not to be true. It seems EU Competition Commissioner Joaquin Almunia spelled out three options to clean up Spain’s banking sector: using Spanish public funds, finding private investment or applying for European aid. Journalists present leapt on the latter. That may well become true in the end … but not yet.
Spain faces a general strike on Thursday while Prime Minister Mariano Rajoy is promising Friday’s 2012 budget will deliver eye-watering austerity for a country already sinking back into recession.