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Happy European Central Bank monetary policy meeting day! It’s the time of the month eurozone economy watchers crowd around their desktop livestreams to find out what new plan Mario Draghi has concocted to revive the region’s growth, since the latest one still doesn’t seem to be working. The problem is that the arrows in Mr Draghi’s economic stimulus quiver are running out, and those that are left all have significant limitations once they’re fired.
Let’s start with a central bank’s most basic tool: lowering interest rates to spur borrowing and investment. In normal times, cutting borrowing costs is a no-brainer. As of December, however, Mr Draghi lowered the ECB’s deposit rate to negative 0.3 per cent. In theory, a negative deposit rate would spur bankers to lend, since leaving the cash in ECB accounts means they’re actually losing money. But so far, there’s been little evidence that logic has taken hold.
Negative interest rates are also difficult politically in the ECB’s host country of Germany, where thriftiness is next to godliness and savings accounts and insurance policies are viewed as important income generators. Lower rates mean lower returns on savings, and cuts in ECB rates are treated with the kind of purple prose and blaring headlines in German tabloids that are normally reserved for celebrity divorces and grisly murders in similar newspapers abroad. Even before the ECB met, the German banking association was out with a statement yesterday saying further interest rate cuts would do “more harm than good.” Read more
Workers shutter a branch of Laiki Bank, which was closed under Cyprus' €10bn bailout last year
For those not following every twist and turn in the EU’s debate over how to bail out failing banks, it may come as a bit of a surprise that finance ministers are still fighting over who pays for a collapsed financial institution given the deal struck in December on this very issue.
But a three-page “issues note” sent to national capitals this week ahead of EU finance ministers’ meetings on Monday and Tuesday – obtained by Brussels Blog and posted here – makes clear that there are still a lot of unanswered questions about a new EU-wide bank rescue fund to pay for such bailouts. And it’s perhaps no surprise that most of the unanswered questions centre around one thing: money. Read more
Do last week’s German constitutional court ruling lambasting – but failing to overturn – the European Central Bank’s crisis-fighting bond-buying programme and today’s political upheaval in Italy have anything in common?
In the view of many ECB critics, particularly in Berlin, the two are not only related, but one may have caused the other. Read more
Jean-Claude Trichet, right, with the parliament's economic committee chair, Sharon Bowles
The troika of bailout lenders has not been getting much love at the European Parliament’s ongoing inquiry into its activities in recent weeks. But the criticism is not just coming from MEPs in the throes of election fever. Predictions of the troika’s demise have come from some unexpected quarters, including current and former members of the European Central Bank executive board.
During the hearings, MEPs have particularly criticised the troika — made up of the International Monetary Fund, European Commission and the ECB — for its overly optimistic growth forecasts for bailout countries, which have been repeatedly revised downwards. Perhaps unsurprisingly, they have also suggested that the troika be subject to greater parliamentary oversight.
Hannes Swoboda, the Austrian social democrat who heads the centre-left caucus in the parliament, went further, saying the body is undemocratic, hostile to social rights and that the EU would be better off without it. Read more
Predicting what Germany will do in a negotiation is fast becoming the Brussels equivalent of soothsaying. Tuesday’s tetchy banking union talks set off yet another diplomatic stampede to consult the ouija boards, throwing canes and tarot cards in order to find out what Berlin really wants.
Were the strident objections of Wolfgang Schäuble, the German finance minister, just negotiating tactics? A manifestation of German domestic politics? Or are they red lines that will require the reforms to create a single banking supervisor to be totally recast or significantly delayed? We’ve consulted the FT Brussels Blog Oracle (and a few diplomats) to draw up these two scenarios.
The Germans are digging in: no deal this year
There was genuine shock at Schäuble’s intervention. Ahead of Tuesday’s meeting of finance ministers, four EU ambassadors predicted to us that a deal — or partial agreement — was at hand. That was until Schäuble spoke. He opened with a dispute that officials thought was close to being resolved: whether small banks fall under the ECB’s supervision responsibilities. Don’t think this will pass the German parliament, he warned.
More worrying for some was his next point. Read more
Rajoy is still angered by Spain's snubbing during Mersch's selection earlier this year.
If you thought the long, drawn-out saga of Yves Mersch’s nomination to a seat on the European Central Bank’s powerful executive board could not get any stranger, think again.
The Spanish government this morning informed Herman Van Rompuy, the European Council president, that it objected to the fast-track “written procedure” Van Rompuy had begun in order to get Mersch finally seated in the job. The procedure – which was begun after the European Parliament refused to sign off on the nomination last month – was due to end today, making it possible for Mersch to take the long-empty seat by November 15.
But the Spanish veto means Mersch now can’t go through and the appointment battle, which has dragged on for nearly ten months, will have to be taken up by the EU’s presidents and prime ministers when they summit in Brussels later this month.
The question gripping the Brussels chattering classes now is: Why? Was Madrid trying to fire a warning shot across the bow of the ECB and Berlin, which have been ratcheting up the pressure over the conditions of a long-expected Spanish rescue programme? Senior officials insist the real reason is far more prosaic. Read more
Eurogroup contenders Juncker, left, and Schäuble
Although the financial markets and many non-Europeans will be watching Friday’s gathering of eurozone finance ministers in Copenhagen to find out how much they will enlarge Europe’s rescue fund, the Brussels echo chamber will be watching for another reason entirely: Just who will be getting three top jobs that must be filled by the time summer rolls around?
Up until the last day or two, the smart money was that Yves Mersch, head of Luxembourg’s central bank, would get the first job on offer – a coveted seat on the European Central Bank’s six-member executive board, taking away a post originally slated to go to a Spaniard, Antonio Sáinz de Vicuña.
But senior eurozone officials said the intense politicking that has occurred in the run up to Friday’s meeting has made Mersch’s appointment less certain. “It’s one of those things that could go one way or another,” said one person directly involved in the talks. “I wouldn’t bank on it yet.”
The politics get very complicated and are directly related to the re-election prospects of French president Nicolas Sarkozy. A detailed explanation of the convoluted twists after the jump… Read more