The European Central Bank’s President, Jean-Claude Trichet, has torpedoed a request for a new 30 euro banknote, backing up the rejection with ice-cold historical and mathematical reasoning.

European Parliament member and former Irish deputy finance minister Jim Higgins had asked Sharon Bowles, chairwoman of the parliament’s Committee on Economic and Monetary Affairs, whether a 30 euro note could be introduced.

She passed the question on to Trichet, but instead of dismissing the question out of hand, the ECB boss answered the question with a typically analytical approach.

“The ECB’s predecessor decided on a sequence of 1:2:5 for the seven euro banknote denominations, 10 and 100; 20 and 200; and 5, 50 and 500,” Trichet wrote to Higgins.

“This sequence is in line with the common denominational split of most of the world’s currencies and also corresponds to the sequence of the euro coins.”

He even went on to give examples of more unusual currency patterns, although by overlooking that Tunisia has a 30 dinar note, he may have exposed a hole in his knowledge.

“Some countries use or have used a sequence of 1:2.5:5. This was the case in the Netherlands in the pre-euro days of the guilder. However, to our knowledge, no country uses 3:30:300, etc. as a denominational sequence.”

“The ECB’s approach towards the denominational split of the euro banknotes has not changed. The ECB has thus not considered issuing a 30 euro banknote,” he concluded.

It may be strictly coincidence but as TV stations are rolling out their latest batch of ballroom shows, Europe’s central bankers appear to have caught the dancing bug.

The Bank of England’s Mervyn King and the European Central Bank’s Lorenzo Bini Smaghi, two of central banking’s more colourful characters, both appear to have it on the brain.

Last week in a speechat Siena University nestled in Italy’s Tuscan hills, ECB board member Bini Smaghi said many bank CEOs in the pre-crisis days were dancing in a suicidal game of musical chairs, allowing their banks to follow the disastrous path of packaging up and buying toxic debt parcels, hoping that a chair would still be left when the music stopped and the stampede for seats begun. He called for a responsible adult to be in charge of the music in future.

On Tuesday evening King was quick-stepping to a similar tune,  ”Parallel to the long-established role which monetary policy plays in taking away the punch bowl just as the party gets going, so there is a role for the central bank to use macro-prudential policy instruments for financial stability purposes by turning down the music just as the dancing gets a little too wild,” King said.

King and Bini Smaghi have been dance partners before, although they were both a little more macabre back then. 

In June, King complained that without regulatory teeth, his institution was limited to issuing sermons or organising the burials of the UK’s dead commercial banks. Shortly after Bini Smaghi likened the ECB’s new regulatory offspring the European Systemic Risk Board to a doctor unable to force a sick patient to take the necessary medicine.

But on the bright side the switch from death to dancing may provide a telling incite into the change of mood among central bankers over recent months.

The Venice backdrop may have warranted some high Italian Opera but financial markets appeared to be humming to the sound of Irish crooner Ronan Keating during the European Central Bank’s latest monthly news conference.

Keating sang the chart-topping hit with the line “You say it best when you say nothing at all” in 1999, the year the ECB was established.

 FX and bond markets appeared to concur as ECB President Jean-Claude Trichet and his Italian colleague Mario Draghi gave their latest assessment on the state of the euro zone economy on Thursday, after the central bank kept interest rates at their current all-time low of 1 percent.

There wasn’t much new in it. The recovery from the crisis will be slow and subdued and the economic road ahead is likely to be scattered with potholes, Trichet said, keeping very much to last month’s line.

So markets began focusing on what Trichet wasn’t saying. A lack of conviction on the recent rise of the euro put the wind up currency markets and pushed the single currency up further, while a sanguine message on inflation appeared not to be what bond markets were expecting, sending euro zone government bond futures to a contract high.

Maybe markets may well have got Keating’s greatest hits on their playlist. Another of his tunes was called Rollercoaster, something plenty of traders must have been singing in the shower over the last couple of years.

Bankers worried about losing their bonuses might be well advised to consider a cost-benefit analysis of the contribution of their public sector colleagues.

Central bankers not only earn much less than their high-flying private sector counterparts, but over the last year have spent almost every second weekend in high-level, save-the-world meetings aimed at clearing up the mess created by Wall St and City banks.     

European Central Bank head Jean-Claude Trichet (who earns a mere 350,000 euros a year ) confessed to a group of student journalists that he spends almost every weekend working.

“My week often consists of seven working days, because we always have international meetings during the weekends,” he was quoted as saying by Germany’s Frankfurter Neue Presse. 

Trichet spent last weekend, for example, at the G20 meeting in London followed by a meeting of central bankers and regulators in Basel to thrash out a new framework for bank regulation.

One of the proposals: supervisors should make sure banks ”limit excessive dividend payments, share buybacks and compensation.”

Five things to think about this week:

APPETITE TO CHASE? 
- Equity bulls have managed to retain the upper hand so far and the MSCI world index is up almost 50 percent from its March lows. However, earnings may need to show signs of rebounding for the rally's momentum to be sustained. Even those looking for further equity gains think the rise in stock prices will lag that in earnings once the earnings recovery gets underway, as was the case in past cycles. The symmetry/asymmetry of market reaction to data this week -- as much from China as from the major developed economies -- will show how much appetite there is to keep chasing the rally higher. 

TAKING CONSUMERS' PULSE 
- A better picture of the health of the consumer will emerge this week as U.S. retailers' earnings coincides with the release of U.S. July retail sales data and the UK BRC retail survey comes out on the other side of the Atlantic. With joblessness still rising, the reports will show how willing households are to spend and whether deep discounts, which eat into retailers' profit margins, are the only thing that will tempt them to shop -- both key issues for the macroeconomic and corporate outlook. 

CENTRAL BANK WATCH 
- After last week's Bank of England surprise, all eyes turn to what sort of signals the U.S. Federal Reserve and Bank of Japan will send on the outlook for their respective economies and QE programmes. After the BOE's expansion of its QE programme the short sterling strip repriced how soon UK rates would rise. But the broader trend recently in the U.S., euro zone and the UK has been to discount rate rises in 2010 -- and possibly as soon as this year in Australia. Benchmark interbank euro rates have risen for the first time in two months, and central bankers everywhere, including China, face the delicate balancing act of managing monetary tightening expectations in the months ahead. 

PRICE PROTECTION
-This week's inflation data (from Germany, France, Italy, euro zone, U.S.) is unlikely to contain any nasty surprises. But the U.S. Treasury's willingness to consider bringing back the 30-year TIPS suggests that enough investors and reserve managers are looking beyond current subdued price data to future inflation risks from QE programmes, etc. That will ensure a close eye is kept on breakevens and whether the main issuers of inflation-linked products in the euro zone are inclined to increase issuance of such products.

TRADE 
- Official resistance to currency appreciation has been evident in some developed countries (Switzerland, RBA, RBNZ, among others) and there are suspicions that some Asian central banks may also be inclined to check such trends given the fierce competition among the world's exporters to grab what orders there are. Trade data this week will show how trade flows are faringand the extent to which Chinese economic activity is driving them.

Five things to think about this week

TUSSLE FOR DIRECTION
- The tussle between bullish and bearish inclinations -- with bears gaining a bit of ground so far this month -- is being played out over both earnings and economic data. Alcoa got the U.S. earnings season off to a good start but a heavier results week lies ahead and could toss some banana skins into the market's path. Key financials, technology bellwethers (IBM, Google, Intel), as well as big names like GE, Nokia, Johnson and Johnson will offer more food for thought for those looking past the simple defensive versus cyclical split to choices between early cylicals, such as consumer discretionaries, and late cyclicals, such as industrials, based on the short-term earnings momentum. Macroeconomic data will need to confirm the picture painted by last week's unexpectedly German strong orders and production figures to give bulls the upper hand.

FINANCIAL FOCUS
- The heavy financial results slate (Goldman, JP Morgan, Bank of America, Citi) will show the extent to which balance sheets are being cleansed of toxic assets and the health of, and outlook for margins, trading revenues, etc. The relative performance of the firms reporting could put the spotlight on the split between investment banking and retail exposure. In Europe, Swedbank's results will be watched for Baltic exposure while clarity is still being sought on what banks plan to do with the large chunk of ECB one-year money which they continue to park back at the ECB in the form of overnight deposits.

JAPANESE DILEMMA
- The BOJ's policy meeting poses thorny questions on quantitative easing (QE), with the policy debate complicated by sharp gains in the yen. The yen has risen as much as 10.5 percent in three months against the dollar and is nearing the 90 threshold which is viewed by the foreign exchanges as the point at which the Japanese authorities start ratcheting up the rhetoric. Further sustained yen gains will fuel market debate about the fallout for carry trades and for exporters -- and by extension economic activity.

HOOKED ON QE
- The sharp jump in yields in gilts, euro zone debt, and Treasuries seen after the Bank of England deferred any decision on expanding its QE programme gave a good indication of how bond markets could react when central banks flag that the QE taps will finally be turned off for good. Implementation of exit strategies may be some way off and producer and consumer price data from both sides of the Atlantic this week are likely to be subdued. However, base effects from the oil price peaks of 2008 are expected to fade in the coming months, leaving a less supportive inflation backdrop.

CHINA
- The FX reserve debate was aired by the highest-ranking Chinese politician to date at L'Aquila summit and U.S. TICs data this week should keep the reserve holdings issue on the boil. Attention is also on Chinese domestic/trade policy following violence in Xinjiang and strains in relations with Australia over Rio Tinto staff detention. Any escalation in either could prompt investors to review the potential for regional outperformance.

Central bankers in the euro zone will have to get out their dictionaries and calculators to work out how often they are entitled to vote on European Central Bank decisions under a complicated new voting system.

New rules show that the size of a country’s economy, the health of its banking sector and the spelling of its name will all influence how often a governor from one of the euro zone’s national central banks gets to vote on setting ECB interest rates and other crucial policy decisions.

This could make the difference between a governor from a similar-sized economy being sidelined for as little as six months in a three-year period or as many as nine.

The system, set to kick in after three more countries adopt the euro, involves up to four groups of central bankers sharing differing numbers of votes. Votes will rotate every month, compared to the 12-month rotation seen at the U.S. Fed, and the complexity of the rules is mind-boggling.

 ”The Governing Council has decided that the number of governors gaining voting rights at the start of each month will be equal to the difference between the number of governors allocated to the group and the number of voting rights assigned to it, minus two,” the ECB said in its explanation of how it had decided on the rotation rate.

Coloured charts handily included with the announcement make the process somewhat easier to follow for the mathematically-challenged.

Currently there are 16 countries in the euro zone, and the new system is not set to kick in until membership hits 19. So given euro scepticism and budget woes in eastern Europe, policymakers are likely to have five more years to do the math before the test comes.

Central bankers have not had much reason to be happy over the last two years, as the financial crisis has lurched from bad to worse.

But the European Central Bank at least is now finding comfort in the fruits of its injection of close to half a trillion euros in 12-month funds last week, which has pushed money market interest rates to new record lows. 

“We are very happy, we see clearly that we decreased the risk premia,” ECB President Jean-Claude Trichet said on Thursday, after the ECB kept its benchmark rate on hold at 1 percent.

Still, the ECB’s generosity in filling bank coffers with cheap cash could paradoxically help financial institutions defer the day of reckoning when they will have to write down bad loans and toxic assets on their books, and adjust their balance sheets. Flush with ECB cash, banks could be encouraged to think they can hang on to past investment mistakes, rather than writing them down now. 

The Swiss-based Bank for International Settlements, a forum for the world’s central banks, says this painful process is a prerequisite for financial and economic recovery, and the International Monetary Fund  says the euro zone is lagging the United States in writedowns.

Maybe the ECB is not helping.

Just a week after warning that euro zone banks will probably have to write off another $280 billion in bad loans and toxic assets over the next 18 months, the European Central Bank has ridden to their rescue by pouring more than double that amount into bank coffers at a bargain-basement rate of just 1 percent.

More than a thousand banks rushed to take up the ECB’s limited-time-only offer of unlimited funds for one year at a fixed interest rate, and will receive a total of 442 billion euros, or $613 billion – the most the ECB has ever lent out in a single operation. 

“We are drowning in money,” a trader at one euro-zone bank said. Goldman Sachs estimated the funds equate to 1,300 euros per man, woman and child in the 16-nation region. 

The central bank is hoping banks will lend the funds on to those men, women and children, as well as other banks and businesses, to bring down the cost of money, encourage spending and shake the region out of a persistent recession.  Money market rates have already fallen to record lows as the ECB has slashed its interest rates, but longer-term liquidity is still scant.

The ECB’s efforts will come to nothing if banks sit on the cash instead of lending it on, or fail to spark consumer demand for credit - so the ECB is betting that spend, spend, spend will light the way out of the downturn.

Five things to think about this week:

STALLING RALLY
- The global equity market rally has stalled in June and is threatening to go into reverse. With this week effectively the last full week of the second quarter, the temptation for many funds to book profits on such a lucrative quarter will be high. Any knock on boost to volatility would pose more risks for some of the trades that looked the most attractive in a lower volatility environment, such as cyclical versus defensives plays, emerging markets, and foreign exchange carry trades.

POLICY, SUPPLY RISKS FOR BONDS
- How the U.S. Federal Reserve will respond to the interest rate market gyrations of the past month has been a key market talking point. Questions centre on whether it will expand the size of buybacks, whether there will be any change in the length of time the buyback programme lasts, whether the central bank makes any effort to unwind the rise in bond yields seen in the past months, and whether there will be any talk of an exit strategy. Another risk to the front end will be the Treasury refinancing, which resumes after a week of no supply and will be concentrating on the shorter end.

WHAT COLOUR ARE THE SHOOTS
- This week's data will show both whether the inventory rebuilding that was priced in over recent months is actually materialising and whether there are any other drivers of economic activity out there. The flash PMI in Europe and sentiment indicators will be particularly relevant in deciding on the latter issue, with consumer and income data out from both sides of the Atlantic providing an additional window on how domestic demand is shaping up.

CENTRAL BANK CASH
- There is potential for significant take up at the ECB's first one-year tender this week and some are speculating that the injection of large amounts of money into the market could drive down short end rates sharply. Most recent anecdotal evidence suggests firms are still facing tight credit conditions but confidence in financial stabilisation is a pre-requisite if banks are to lend on. This is leading to speculation of where else the money might be parked in the interest rate or fixed income universe. There are also question marks over whether any of the money might leak outside the euro zone -- and what, if any, are the potential FX implications of such seepage.

EMERGING MARKET RISKS
- Higher volatility spells underperformance in the emerging market universe and has raised questions over the risks in individual countries -- e.g. Turkey's IMF deal; Latvia's political difficulties in winning acceptance for budget cuts; the possibility of the Iranian domestic upheaval gaining market attention; and ructions within the Saudi banking sector. The shifting sentiment suggests potential hurdles for heavy third quarter corporate and government refinancing needs, especially in central and eastern Europe, not least given that the heavy issuance plans of better-rated developed market sovereigns pose crowding out risks.