Eyes on Weidmann for Draghi pushback

December 5, 2014

Deutsche Bundesbank President Weidmann arrives for the annual news conference in Frankfurt

Bundesbank chief Jens Weidmann, German Finance Minister Wolfgang Schaeuble and his Italian counterpart, Pier Carlo Padoan, all speak at a conference in Frankfurt today.

Weidmann has made no secret of his opposition to printing money while Berlin has so far been deaf to calls from Paris and Rome to spend more to kick start euro zone growth. Schaeuble has also made his reservations about quantitative easing plain for all to see.

European Central Bank President Mario Draghi pushed the envelope as far as he could on Thursday, saying a review early next year would decide whether QE was needed. He even mentioned QE explicitly a number of times and said he didn’t need unanimity among the 24 ECB policymakers to force it through, a message aimed at his German colleagues among others.

We reported exclusively last night that Weidmann and his ECB colleague Sabine Lautenschlaeger opposed a firming up of the language on the expansion of the bank’s balance sheet that Draghi got through yesterday, making it an intention rather than an expectation.

Given the dire new forecasts which show euro zone inflation at just 0.7 percent next year, way below the target of close to but below 2 percent, and growth of just 1 percent, it’s hard to see the ECB failing to take the ultimate leap now.

Draghi also said those figures did not fully capture the recent plunge in oil prices. The main question seems to be whether it happens in January or March (there is no policy meeting in February under a new six-weekly schedule).

There is certainly little sign of fiscal stimulus sharing the ECB’s burden with Berlin looking to balance its budget and European Commission President Jean-Claude Juncker’s investment plan overwhelmingly reliant on the private sector.

Germany’s Bundesbank has just halved its 2015 growth forecast and trimmed its estimate for this year, though Weidmann said there were signs current weakness would soon be overcome.

The bank said it expected the economy to expand by 1.0 percent next year, compared with its June estimate of 2.0 percent. Wouldn’t a bit of stimulus help even Europe’s strongest economy at this point?

More upbeat were German industrial orders, just out, which leapt by 2.5 percent on the month in October, following an upwardly revised 1.1 percent increase in September.

For the markets, focus will be on the monthly U.S. jobs report which is tipped to show employment growth accelerated a bit in November but subdued wages leaving room for the Federal Reserve to hold interest rates near zero well into next year.

Something of a political earthquake could be underway in the German state of Thuringia. Germany’s three left-leaning parties have agreed a deal to rule in the eastern state, setting the stage for the country’s first state premier from the radical Left party.

The final hurdle for Bodo Ramelow comes today with a vote in the state assembly to formally appoint the coalition. Ramelow’s coalition with the Greens and Social Democrats has a one-seat majority so it is fragile but if he secures his position, he would end 24 years of conservative rule in the state and perhaps point the way to a three-way left-leaning partnership at national level in 2017. That remains a long way off for now.

Turkish Prime Minister Ahmet Davutoglu meets Greek premier Antonis Samaras in Athens. Northern Cyprus is always a topic for discussion and disagreement but Vladimir Putin has given them something more topical.

Russia scrapped the South Stream pipeline project to supply gas to southern Europe without crossing Ukraine and instead named Turkey as its preferred partner for an alternative pipeline, with a promise of hefty discounts.

Given its proximity, that could work for Greece which has to import all its energy needs.
Russia’s central bank said it bought $1.87 billion of roubles on Wednesday to shore up the currency which has been battered by Western sanctions over Ukraine and low oil prices. The rouble has firmed at today’s open with traders saying the central bank was probably in again.

Putin didn’t do the rouble any favours yesterday, saying Russia’s enemies wanted to carve it up and destroy its economy to punish it for becoming strong. He vowed to rise to any challenge.

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