Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with tradition. But, as in the Fed’s case, the increased transparency seems to have only made investors more confused.
Call it the great wagon circling.
Central bankers are talking tough in the face of the wild gyrations in financial markets. But it’s becoming increasingly clear they are sweating – and drawing up contingency plans to assuage the panic that’s taken hold since Chairman Ben Bernanke last week sketched out the Fed’s plan for winding down its QE3 bond-buying program. U.S. policymakers in particular must have predicted investors would react strongly. But now that longer-term borrowing costs have spiked to near a two-year high, they look to be entering full-blown damage control.
ECB President Mario Draghi had an interesting couple of things to say about historical perspective at his press conference on Thursday, responding to the IMF’s admission that it lowered its normal standards to bail out Greece, among other things.
Another month, another rise in the number of jobless in the euro zone.
As expected, the unemployment rate hit a new record 12.2 percent in April, according to Eurostat on Friday, meaning some 19,375,000 euro zone citizens are out of work.
As is now customary for retiring central bank chiefs, Bank of England Governor Mervyn King has received a warm – but not a standing – ovation from economists for his time in charge.
A sudden turn for the worse across German companies should clinch an interest rate cut from the European Central Bank next week, or in June at the latest.
Are European bond investors looking for love in all the wrong places?
The premium bankers demand to hold various types of euro zone debt over that of Germany has recently come down. In normal circumstances, this might suggest markets are no longer discriminating between the risks associated with different member countries’ bonds. But analysts say the recent convergence is based on a precarious belief of ECB action rather than any real improvement in economic fundamentals.
The huge downturn in French businesses was by far the most disappointing aspect of this week’s euro zone PMIs, which again painted a dismal picture of the euro zone economy.
The problem of a “democratic deficit” that might arise from the process of European integration has always been high on policymakers’ minds. The term even has its own Wikipedia entry.