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.
The German media responded negatively to last week’s measures, defaulting to the country’s historic fear of inflation stretching all the way back to the 1920s Weimar Republic although there is virtually no inflation in Europe’s largest economy at the moment. Merkel has given Draghi a fair wind in the past to initiate “unorthodox” policy measures.
Having unleashed a variety of measures last week, QE will not be unleashed soon – the ECB line is that the impact of the latest action will not be fully measurable until the year-end. But if inflation keeps falling from an already rock-bottom 0.5 percent, the pressure will mount well before then.
If German (and particularly Bundesbank) opposition to creating money is a crucial part of the jigsaw, so too is the range of opinion on the ECB Governing Council.
We’ve already seen glimpses, with ECB number two Constancio, Finland’s Liikanen, Belgium’s Coene and Makuch from Slovakia all saying more could be done – as did Draghi last week – while Bundesbank chief Jens Weidmann declared it would be absurd to start talking about new measures now.