Draghi back in the dock

November 17, 2014

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European Central Bank President Mario Draghi faces lengthy interrogation at the European Parliament today.

After signs of discord, the ECB chief won unanimous backing for his target of how much money he wants to pump into the euro zone economy. Bundesbank head Jens Weidmann has already opposed some of the ECB’s extraordinary policy moves and says the planned balance-sheet expansion is an expectation not a target.

All that means the ECB remains a long way from launching full quantitative easing. Draghi’s peerless ability to steer financial markets with words alone may again be put to the test.

G20 leaders, meeting in Brisbane over the weekend, committed to add an extra 2.1 percentage points to global growth over five years. But a cursory look at each country’s commitments doesn’t appear to reveal any new money over and above existing plans.

Germany, for example, has an investment plan next year which amounts to just 0.1 percent of GDP. Germany is used to G20 pressure to spend more and it barely escaped recession in the third quarter. But there is no sign it will budge. As if to mock the target, Japan reported this morning that it unexpectedly slid into recession in the third quarter with GDP falling at a 1.6 percent annualized rate.

At the G20, European leaders including German Chancellor Angela Merkel – who talked with Putin for over three hours in camera – warned of more sanctions unless Russia ends its support for pro-Russian separatist rebels. President Vladimir Putin left the summit early. Barack Obama accused Russia of invading Ukraine and Britain said while there was a cost to sanctions it was dwarfed by the cost of allowing a frozen conflict to develop in Europe.

European Union foreign ministers meet in Brussels today. Last week, officials said no decision was likely on tougher sanctions until EU leaders meet for a summit in mid-December. But it feels like disenchantment with Putin grew in Brisbane.  Fresh volleys of artillery fire were heard across many parts of separatist-held Donetsk in eastern Ukraine on Sunday after Kiev warned again of rebel preparations for a fresh offensive.

Islamic State militants have beheaded U.S. hostage Peter Kassig and warned the United States they would kill other U.S. citizens “on your streets”. American forces have begun advising Iraqi troops in the western Anbar province, the top U.S. general told Reuters, in a faster-than-expected expansion of an operation that is central to its campaign against Islamic State.

Dutch authorities have found the H5N8 strain of bird flu at a poultry farm in the central Netherlands, the same highly contagious strain as found this month in Germany and which has prompted massive poultry culls in Asia. About 150,000 chickens at the farm will be destroyed, and poultry transport banned across the whole of the Netherlands. Britain has now confirmed a case as well.

The European Commission said it expected to adopt urgent interim protective measures to contain the outbreak, including a ban on selling poultry products from the affected areas to EU and third countries. The strain has never been detected in humans.

The Scottish National Party ended its annual conference ruling out supporting the ruling Conservative party in government after next May’s UK election.
But it held out the prospect of supporting Labour, an intriguing offer given the SNP could take 20 or even 30 of Labour’s seats in Scotland and could even hold the balance of power at Westminster.

Provincial mayor Klaus Iohannis won Romania’s presidential election on Sunday, inflicting a shock defeat on Prime Minister Victor Ponta. The ethnic German whose campaign was backed by two centre-right parties turned round a 10-point deficit to win the runoff. Despite the loss, Ponta ruled out quitting as premier and said his Social Democrat alliance would remain in power until parliamentary elections due in 2016. For investors that raises the uncomfortable prospect of sclerotic government.

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