MacroScope

Axel who? ECB gets tough without hardman Weber

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When it decided the time was right to crack down on inflation, the European Central Bank did so without the man who is often regarded as its toughest inflation hawk: Bundesbank chief Axel Weber.  The ECB took financial markets by surprise by announcing on Thursday it could raise rates as soon as April — a decision its policymakers reached without Weber even in the room.

The German, who has appeared isolated at times over the last year because of his staunch commitment to price stability above all else, was absent without leave and did not attend the meeting.

“He’s tied up today,” a spokesman for the Bundesbank said of Weber, who last month announced he would step down from the central bank a year before his term ended and that he was no longer a candidate to head the ECB when Trichet’s term expires in October. Weber said his hardline views were not well received by other decision makers.

The ECB’s decision to flag a rate hike took markets completely unawares.

“The position of the Governing Council is that an increase in interest rates at the next meeting is possible,” Trichet said in his matter-of-fact style, sending the euro soaring.

Weber made a splash last May when the lone ranger came out swinging against the ECB’s decision to start buying government bonds – seen as a breach of protocol in the sanguine central bank which prides itself on unanimity in its decisions.

Dutch ECB knowledge as holey as their cheeses

ECB President Jean-Claude TrichetThe Dutch public’s knowledge about the European Central Bank is as holey as the some of the country’s infamous cheeses, a new ECB survey has shown.

 When asked about the ECB’s main objective and being given the option to mark statements as true or false, more than 60 percent of Dutch respondents knew the ECB strives for price stability, but close to half of those surveyed also believed it tries to keep unemployment below five percent and more than a third think its primary objective is high economic growth.

    “Knowledge about the ECB’s main policy objective is far from perfect,” the study which was carried out last year said.”The average number of correct answers to our eleven statements is less than five.” 

The ECB’s exit strategy gets the austerity treatment

Trichet gives the ECB's exit strategy the austerity treatment

Trichet gives the ECB's exit strategy the austerity treatmentAs a top central banker you have to watch your words. Almost every one you utter is scrutinised by finanical markets for a cryptic hint on policy the way a jeweller studies a diamond. So when you chop out almost a quarter of the content of your main policy message, the likelihood is that you know you are playing with fire.
The ECB juggled the flames on Thursday, slashing 427 words — almost 25 percent –from its monthly policy statement. The leaner 1,388 word composition represented no change at all in the bank’s view of the world, stressed the bank’s President, Jean-Claude Trichet.
But the some of the stuff binned involved some of juiciest material, particularly all-important plans to remove crisis support. That section got reduced by almost 30 percent to a slender 62 words although the message stayed the same, something along the lines of: we will reel support in gradually and when markets are ready.
With central banks in other major advanced economies now turning back in the direction of stimulus, the ECB’s unwavering, albeit shorter, view of the exit route helped the euro break through the $1.40 barrier.
It just shows that austerity really is all the rage in much of the euro zone.

Investment Week: From the Trenches…

Early September skirmishes turned this week into full-scale “currency wars”, to use Brazil’s terminology. Dramatic language, but not unwarranted. The markets have taken Fed signals of preparation for further money printing as an effective attempt at a dollar devaluation, allowing the country export its deflationary pressures overseas via capital outflows to higher-yielding developing countries.

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The major developing nations, for all the arguments favouring currency revaluations of 20-25% over the next couple of years, are not going to stand idly by and watch that happen overnight. But their attempts to offset the impact of soaring local currencies and attendant asset bubbles merely floods local economies with cash at a time when fighting inflation — not deflation — is their priority. Brazil has raised the red flag, but the likes of Turkey and Taiwan are also registering fears about the impact of another bout of US monetary pump priming. Meantime, the gloves are off in the US-China yuan row; possible trade measures are being invoked in DC; and there is little chance of cooler heads prevailing this side of the US mid-term elections. This story will run.

What’s certain is the G20 finance meeting in South Korea on Oct 22 has significant work to do. Next week the battle lines are already drawing up at the Asia-Europe summit in Brussels (and China’s PM Wen and Japan’s PM Kan both travel) and then the annual IMF/G7 meetings in DC. The key US September payrolls report on Friday, for good measure, may be the deciding data set for the Fed to pull the trigger on QEII. And also meeting next Thursday is the Bank of England, itself back in a QE frame of mind if you listened this week to one of its policymakers Adam Posen  

Diplomacy in central banking debate comes back to bite Weber

German central bank board member Thilo Sarrazin

German central bank board member Thilo Sarrazin

Fresh from asserting that diplomacy is over-rated for central bankers, German Bundesbank President Axel Weber is now embroiled in an embarrassing scandal over undiplomatic comments from one of his board members which could ultimately damage Weber’s own career ambitions.

Thilo Sarrazin, who joined the central bank’s board last year, has unleashed a debate in Germany over immigration and integration policy with a book critical of Turkish immigrants and has drawn rebukes from political leaders, including Chancellor Angela Merkel, for asserting that Jews and Basques have a “particular gene” that sets them apart.

The Bundesbank condemned his comments as harming the reputation of the institution and is considering its options, but under German law – designed to safeguard the independence of the central bank from political swings and roundabouts — has only limited options to get him removed.

Diplomacy not needed for top ECB job, says Bundesbank boss

Axel Weber, head of Germany’s Bundesbank and a frontrunner to take over the leadership of the European Central Bank next year, thinks diplomacy is over-rated in central bankers.

TrichetWeberWeber normally avoids all comment on the tricky subject of choosing a successor to current ECB President Jean-Claude Trichet but with just over a year to go before the plum post comes up, could not resist making an ambit claim.

Asked by a television interviewer whether  he was enough of a diplomat to take over from Trichet given his public criticism of the ECB’s decision to buy government bonds in May, Weber said he thought diplomacy was an optional extra.

ECB stuck feeding southern Europe’s cash addiction

Spain ECB borrowing

Commercial banks in southern Europe are increasingly addicted to cheap central bank money after dealers shut them out of money markets. Due to this dependency, the European Central Bank will have little option but to keep offering banks cold hard cash for almost nothing – currently it prices its loans at 1.0 percent.

Economic growth in the euro-zone core has been robust lately, but southern Europe has been hit hard on several fronts recently and is falling badly behind. First, the sovereign debt crisis hit Greece and other southern periphery countries, then bank stress tests showed 6 out of 7 failing banks were in Spain or Greece, and then the region posted only tepid economic growth.

Bank borrowing from the ECB shows increasing strains in southern euro-zone’s financial sector while banks elsewhere are getting back on their feet, but the fear of contagion from country to country will keep the ECB on its toes. Banks in Greece borrowed twice as much last month as they did in July 2009, even though outstanding central bank lending fell 18 percent over the same time. Banks in Portugal borrowed five times as much in July 2010 as they did a year earlier, and borrowing also rose in Spain and Italy.

Has it really been three years?

European Central Bank Governing Council member and Cyprus Central Bank Governor Athanasios Orphanides addresses parliament in Nicosia, November 27, 2009. REUTERS/Andreas Manolis

European Central Bank Governing Council member and Cyprus Central Bank Governor Athanasios Orphanides addresses parliament in Nicosia, November 27, 2009. REUTERS/Andreas Manolis

It is three years to the day since the European Central Bank first threw unlimited amounts of cheap cash at banks in a bid to ease liquidity logjams, and at least one  of its 22 policymakers sees no reason to rush for the exit yet.

 ”We remain sensitive to the liquidity needs in the banking sector and, as we have been doing since the beginning of the crisis, we will continue to provide liquidity as necessary,” Cyprus central bank governor Athanasios Orphanides said in an interview with Reuters.

ECB’s Trichet ready for Bermuda shorts

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Jean-Claude Trichet, the head of the European Central Bank, was in a good mood on Thursday.

The 16-country bloc’s central bank is starting to see light at the end of the tunnel after a long, hard slog through the financial crisis and the resulting Great Recession, and this gives the policymakers a chance for some R&R.

“We are now … in a situation, which is obviously better than before,” Trichet said after the 16-country bloc’s central bank kept interest rates on hold at a record-low 1.0 percent. “Again, I don’t declare victory.”

Pass Jean-Claude Trichet a vuvuzela

Give European Central Bank President Jean-Claude Trichet a vuvuzela.
Having previously confessed ignorance on all things soccer the ECB chief finally appears to have been bitten by the World Cup bug.
He did a Ronaldo-style double step-over when asked who he would cheer for in Sunday’s final between Spain and the Netherlands but admitted he enjoyed Spain’s slick defeat of Germany the previous evening.
“The last match was beautiful I have to say,” Trichet enthused at the bank’s news conference.
The comments were greeted with laughter by the clutch of international journalists in the audience. Realising that he may have sounded a little too happy about Germany’s loss he quickly backpedalled.
“I don’t have any judgment on the result of the match. I said that it was a beautiful match obviously. And the two teams were very beautiful on the field.”
Germans called for Paul the now infamous “the oracle” octopus to be thrown on the BBQ after he predicted the defeat. Mr Trichet could be next in line. Then again there are economists who would argue that Spain needs ECB support at the moment.